Risky Scaffolding provides services to building contractors. The firm's contribution margin ratio is 0.25 and its annual

Question:

Risky Scaffolding provides services to building contractors. The firm's contribution margin ratio is 0.25 and its annual fixed costs are $400 000. The firm's income tax rate is 40 percent.

Required:

1. Calculate the firm's break-even revenue.

2. How much before-tax profit must the firm earn to make an after-tax net profit of $260 000?

3. What level of revenue for scaffolding services must the firm generate to earn an after-tax net profit of $260 000?

4. Suppose the firm's income tax rate falls to 35 percent. What will happen to the break-even level of revenue?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...