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 firms contribution-margin ratio is 20 percent, and its annual fixed expenses are $250,000. The firms income-tax rate is 35 percent. Required: 1. Calculate the firms break-even volume of service revenue. 2. How much before-tax income must the firm earn to make an after-tax net income of $140,000? 3. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $140,000? 4. Suppose the firms income-tax rate changes to 25 percent. What will happen to the break-even level of consulting service revenue?
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