Power Grid Engineering Associates, Inc., provides consulting services to commercial electric utilities. The consulting firm’s contribution- margin ratio is 25 percent, and its annual fixed expenses are $ 200,000. The firm’s income- tax rate is 40 percent.
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 $ 120,000?
3. What level of revenue for consulting services must the firm generate to earn an after- tax net income of $ 120,000?
4. Suppose the firm’s income- tax rate declines to 35 percent. What will happen to the break- even level of consulting service revenue?