Hydro Systems Engineering – Break Even Analysis
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?
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