Question

Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm's contribution- margin ratio is 15 percent, and its annual fixed expenses are $285.000. The firm's income tax rate is 30 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 $154,000? 3. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $154,000? 4. Suppose the firm's income tax rate changes to 20 percent. What will happen to the break-even level of consulting service revenue? Complete this question by entering your answers in the tabs below Reg 1 to 3 Reg 4 Calculate the firm's break-even volume of service revenue. How much before-tax income must the firm earn to make an after-tax net income of $154,0007 What level of revenue for consulting services must the firm generate to earn an after-tax net income of $154,000? (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) Break-even volume Before tax income Service revenue

Answer 1

Page: No 0 Answer © Borealis event volume Break even volume = fixed costs Contribution margin sectio $ 285000 = $1900,000 After tax income Breaks even volume = $1900,000 @ Bebore bate praecame Before tax income a Ci- tax rate) = $154000 (1-30%) tax state = 30% : 154000 07 = $ 220,000 .:. Bebore tax income = $200,000

Page: No @ wervice revenue Service revenue = Required contribution margin Contribution mangin oratio Bebore tax income + fixed corf Contribution margin vratio 220,000 + 285,000 : 15% 505000 0.15 3366,6666667 = ñ $ 3, 366,667 . Service revenue = $3,366,667 © Rise in level of income taxes would have no eblect on the break even level of consulting service revenue. ... The break even level of consulting service revenue will not change