• Prepration Operating Budget forecast for 2020 and 2021
  		Actual 2019	FCT 2020	FCT 2021
  Industry Market Share		10,00,000.00 20%	15,00,000.00 20%	17,50,000.00 20%
  	% of Sale
  Sales		2,00,000.00	3,00,000.00	3,50,000.00
  Material	25%	50,000.00	75,000.00	87,500.00
  Labour	35%	70,000.00	1,05,000.00	1,22,500.00
  Factory Overhead	20%	40,000.00	60,000.00	70,000.00
  	80%	1,60,000.00	2,40,000.00	2,80,000.00
  Gross Profit	20%	40,000.00	60,000.00	70,000.00
  Selling	5%	10,000.00	15,000.00	17,500.00
  Corporate Overhead	10%	20,000.00	30,000.00	35,000.00
  Operating Profit(OP)	5%	10,000.00	15,000.00	17,500.00
  Taxes(% of OP)	25%	2,500.00	3,750.00	4,375.00
  Net Income	3.75%	7,500.00	11,250.00	13,125.00
  	% of Sale
  Cash	5.00%	10,000.00	15,000.00	17,500.00
  Accounts Receivable	20.00%	40,000.00	60,000.00	70,000.00
  Inventory	10.00%	20,000.00	30,000.00	35,000.00
  Fixed Assets	100.00%	2,00,000.00	3,00,000.00	3,50,000.00
  Total		2,70,000.00	4,05,000.00	4,72,500.00
  Account Payable	10%	20,000.00	30,000.00	35,000.00
  Debt	Plug to Balance	1,20,000.00	2,33,750.00	2,83,125.00
  Common Stock	Fixed	1,20,000.00	1,20,000.00	1,20,000.00
  Opening RE		2,500.00	10,000.00	21,250.00
  Net Income		7,500.00	11,250.00	13,125.00
  Total		2,70,000.00	4,05,000.00	4,72,500.00

  based on this calculation

1. The company uses a job cost system and has specialized labour for its jobs. The Human Resources department has done a great job recruiting talent for each job but there is a lot of competition for this labour. The forecast above is the best guess of what it will cost to attract and retain talent. This is reflected in the labour cost line. Some jobs are new to the company and the training budget will also be important. Sales in 2021, in particular, are very highly dependent on well-trained labour.

In 2020, a new president of the company is named and believes the 3.75% net income as a percentage of sales is too low. He/she wants to cut your labour budget. He/she, in particular, wants to cut the training budget, which is in labour costs.

How would you explain to the new president the benefits of staying with the budget of $105,000 in 2020?