The numbers work like this... say you consistently have a 20% labor cost. The stupid government comes along and doubles your labor cost from 7.5 dollars per hour to 15.... (we’re assuming you can’t schedule less people etc and you have to accept a double labor cost). If your wanting to maintain a labor cost of 20%... 20 percent is how much you need to increase your revenues. So you either sell 20 percent more stuff... or you raise your prices to achieve that.
Actually I said that wrong... if you want to maintain your same net profit... you increase your gross sales 20%. Its early :)
Technically, you are very correct. I’m trying to find an explanation that makes this problem obvious to my friends who are less astute in Management Accounting.
The concept that Labor must generate a financial Return which is greater than its Cost seems to elude them. God forbid I mention Profit.