Question: Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm's contribution-margin ratio is 20%, and its annual fixed expenses are $120,000. The firm's income-tax rate is 40%.
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 $48,000?
4. Suppose the firm's income-tax rate rises to 45%. What will happen to the break-even level of consulting service revenue?