Question: Power Grid Engineering Associates, Inc., provides consulting services to commercial electric utilities. The consulting firms contribution- margin ratio is 25 percent, and its annual fixed

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.

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 $ 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?

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