Question

Exercise 7-33 Consulting Firm; CVP Analysis with Income Taxes (Appendix) (LO 7-1, 7-4, 7-11) Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm's contribution margin ratio is 30 percent, and its annual fixed expenses are $280,000. The firm's income tax rate is 45 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 $152.000? 3. What level of revenue for consulting services must the firm generate to eam an after-tax net income of $152.000 4. Suppose the firm's income-tox rate changes to 35 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 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 $152,000? What level of revenue for consulting services must the firm generate to earn an after-tax net Income of $152,000? (Do not round Intermediate calculations. Round your final answers to the nearest dollar amount.) Break-even volume Before tax income Service revenue 933.333 276,363
just need service revenue, i cannot figure it out

Answer 1

Service revenue:

To find out service revenue we will use contribution margin ratio, Fixed expense and before tax net income

*After tax net income = $152,000

*Tax rate = 45%

* Before tax net income = $152,000/(1-t)

=$152,000/(1-0.45)

=$276,364

___________________________________________

Service revenue - variable cost = contribution margin

Suppose service revenue is X

contribution margin ratio = contribution margin/sales

0.30 =contribution margin/X

Contribution margin = 0.30X

Now, Before tax income = Contribution margin - Fixed cost

$276,364 = 0.30X-$280,000

X=$1,854,545

Thus, Service revenue should be $1,854,545

Check your answer

Service revenue	$1,854,545
Contribution margin	$556,364($1,854,545*30%)
Less: fixed cost	$280,000
Before tax income	$276,363
Tax 45%	$124,363 ($276,363*45%)	(
After tax income	$152,000(276,363-124,363)