Question: Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firms contribution-margin ratio is 20 percent, and its annual fixed expenses

Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 20 percent, and its annual fixed expenses are $120,000. The firm s income-tax rate is 40 percent.

Required:

1. Calculate the firm’s break-even volume of service revenue.

2. How much before-tax income must the firm earn to make an after-tax net income of $48,000?

3. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $4 8.000?

4. Suppose the firm’s income-tax rate rises to 45 percent. What will happen to the break-even level of consulting service revenue?

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