Entrep Module 6 Forecasting Costs and Revenue
Entrep Module 6 Forecasting Costs and Revenue
Entrepreneurship
Quarter 2 – Module 7
Forecasting
Revenues And Costs
Now that you have identified what business to undertake and are
familiar with the tools and materials needed in the operation of your
business, let us apply what you have learned in the previous module by
forecasting the revenues and costs incurred in your business. You might
probably be wondering how profits are computed. This module will help
guide you realize the revenues and profits of your chosen business.
Revenue is a result when sales exceed the cost to produce goods or
render the services. Cost on the other hand simply refers to the amount of
money used to produce or manufacture goods/merchandise as well as costs
incured in selling the goods/merchandise. How much revenues and costs
incurred in the operation of the business? How are these projected? And
how are these used to compute profit/loss of the business shall be learned
in this module.
This module is divided into two lessons:
Lesson 1 – Forecasting the revenues of the business
Lesson 2 – Forecasting the costs to be incurred
To be able to successfully complete this module, previous knowledge
in multiplying numbers will best help.
Why forecast? We often watch news as Kuya Kim reports the direction
of the typhoon in the next 2 days, what Kuya Kim is doing is giving us
information taken by satellites and gives us the direction of the typhoon. In
weather forecasting, the reporter is giving us advance information that could
help us prepare and be ready for upcoming typhoon. This way, risks such as
accidents, devastation of properties and loss of life may be prevented.
Before starting with this module, let us see what you already know about
forecasting revenues and costs. Answer the questions below.
Encircle the letter that bests correspond to your answer.
1. Refers to the amount added to the cost of a product to determine
the selling price –
a. Revenue b. Cost c. Mark Up d. Mark Down
2. Aling Marta sells bibingka in her neighbourhood, every day she can
sell 45 pieces of bibingka at 20 pesos each. How much is her daily
revenue?
a. 900.00 b. 450.00 c. 800.00 d. 1000.00
3. It is a planning tool that helps entrepreneur copes up with
uncertainties in the future operation of the business.
a. Revenue b. Selling c. Benchmarking d. Forecasting
4. The selling price of an item or merchandise is computed by adding
cost per unit and ?
a. Revenue b. Mark Up c. Discount d. Number of Items
You have learned in the previous lesson the 4Ms of operations, you
now have the idea on what product/s to manufacture and sell. Now, you
also have a business model. One of the most challenging parts in developing
a business plan is the financial plan. This part allows the entrepreneur to
make decisions based on financial assumptions without even having started
the business. Therefore, these financial projections should be given the most
attention by the entrepreneur.
Let us now examine how the sale of products generates revenues. In
this lesson, we will identify the mark-up and selling price of the product. We
will also project the revenues that the business will make from the sale of
products
What’s New
Have you tried estimating the time that it takes you to travel from
home to school? Try to fill in the necessary information in the table below.
Write your estimate in Estimated Time column, after arriving to school fill in
the Actual Time in the blank provided.
Estimated Time Actual Time
1. _
2. _
3. _
How close were your estimates compared to the actual time? Did
your estimate fell short compared to the actual time? What do you think
were the factors that might have contributed in getting you early to school?
List the reasons in the blank.
_
_
On the other hand, does your actual time exceed your estimates?
What do you think were the factors that might have contributed in arriving
later than your estimated time? List the reasons in the blank.
_
_
__
What is It
Table 1
Projected Daily
Revenue
Fit Mo'to Ready to Wear Online Selling Business
Projected
Projecte
Volume
d
Cost Mark- Sellin (D)
Revenue
Type per up g Average
(E)
of Unit 50% Price No. of
RTW's (A) (B) (C) Items
(Daily)
Sold
(Daily
)
(A) (B)= (A x (C)= (A+B) (D) (E) =(C x D)
.50)
T- 90.00 45.00 135.0 10 1,350.00
Shirts 0
Jeans 230.0 115.00 345.0 6 2,070.00
0 0
Total 320.0 160.00 480.0 16 3,420.0
0 0 0
Table 2
Projected Monthly and Yearly Revenue
Fit Mo'to Ready to Wear Online Selling Business
Projected Projected
Projected Projected
Volume Volume
Revenue Revenue
Selling Average Average
No.
Type of Price No. of Items of Items
RTW's Sold (Monthly) Sold (Yearly)
(Monthly) (Yearly)
F= (D x H= (D x 365
(C)= (A+B) 30 G= (C x F) I= (C x H)
days)
days)
T- 135.00 300 40,500.00 3,650 492,750.00
Shirts
Jeans 345.00 180 62,100.00 2,190 755,550.00
Table 3
Projected Monthly Revenue
Fit Mo'to Ready to Wear Online Selling Business
Month January February March April May June
Revenue 102,600.0 107,730.0 113,116.5 118,772.3 124,710.9 137,182.0
0 0 0 3 4 4
The numbers in the last table are very attractive, having revenues
that are increasing in numbers is a good sign that a business is growing.
However, an entrepreneur should not be overwhelmed on these revenues as
these are just gross revenue, this is not the final amount of profit or income
an entrepreneur will get at the end of every period. Take note that the
amount of net revenue is still subjected to the expenses incurred in the
operation of business.
What’s More
After learning the calculations presented, you can now compute the
projected revenue by day, month and year based on your business concept.
Aling Minda is operating a buy and sell business, she sells
broomsticks (walis tingting) in her stall at a local market. She gets her
broomsticks from a local supplier for 25 pesos each. She then adds 50
percent mark-up on each broomstick. Every day, aling Minda can sell 30
broomsticks a day.
Use the template below and fill in the necessary figures based on
the scenario. Remember to use the factors to consider in projecting revenues
and refer to tables 1, 2 and 3 as your guide.
Total
Total
What I Can Do
What’s New
Have you tried recording the amount of money you spend from your
daily allowance? You might be experiencing difficulties in making your
allowance meet your daily needs as student. Try to fill in the information
below to come up with a breakdown of your daily allowance.
Breakdown on Daily
Allowance Name: _
Daily Allowance: Ᵽ
Less: Daily Expenses
Food Ᵽ
Fare _
School Supplies _
Recreation _
Others _ _
Total Ᵽ
Were you able to get a positive total? You may have spent your daily
allowance wisely and saved some of your daily allowance. Did you spend all
your allowance and ended up with a zero total? You may have spent your
allowance on expenses essential to your need as a student.
Considering your expenses as a student, a business also has expenses
necessary for its upkeep. It would be best for any business to arrive with a
positive total; this would mean profit for the business. Careful consideration
and projection of these factors could mean success for the business.
What is It
You have just learned about what cost is. This time let us identify
costs and expenses incurred by the business.
Cost of Goods Sold / Cost of Sales refer to the amount of
merchandise or goods sold by the business for a given period of time. This is
computed by adding the beginning inventory to the Net Amount of
Purchases to arrive with Cost of goods available for sale from which the
Merchandise Inventory end is subtracted.
Merchandise Inventory, beginning refers to goods and
merchandise at the beginning of operation of business or accounting period.
Purchases refer to the merchandise or goods purchased. Example:
Cost to buy each pair of Jeans or t-shirt from a supplier.
Merchandise Inventory, end refers to goods and merchandise left
at the end of operation or accounting period.
Freight-in refers to amount paid to transport goods or merchandise
purchased from the supplier to the buyer. In this case, it is the buyer who
shoulders this costs.
In a merchandising business such as Fit Mo’to Ready to Wear
Online Selling Business, the formula to compute for costs of goods sold is as
follows:
Let us calculate the cost of goods sold of Ms. Fashion Nista’s online
selling business for the month of January.
Table 4 shows the costs incurred during the first month of operation
of Fit Mo’to Ready to Wear Online Selling Business. Since Ms. Nista get her
stocks from an online supplier, there is no need to order ahead and stock
more items. Therefore, there is no Merchandise Inventory, beginning as well
as Merchandise Inventory, end. Ready to wear items purchased online from
the supplier are then sold as soon as they arrived.
Cost of goods is calculated by simply multiplying the number of items
sold every month (300 t-shirts and 180 pairs of jeans) to its corresponding
cost per unit (90.00 pesos for every t-shirt and 230.00 pesos for every pair of
jeans). A cost in transporting the goods from the supplier to the seller (Ms.
Nista) or Freight-in is then added to Net Cost of Purchases.
Table 4
Projected Cost of Goods Sold (Monthly)
Fit Mo'to Ready to Wear Online Selling Business
Projected
Volume
Type Cost per Average No. of
Unit Projected Costs of
of Items Sold
Purchases (Monthly)
RTW's (Monthly)
(A) F = (D x 30 J = (A x F)
days)
T-Shirts 90.00 300 27,000.00
Jeans 230.00 180 41,400.00
Total 320.00 480 68,400.00
Table 5
Freight-in paid by Ms. Nista every month
Projected Volume
No. of Items Freight In (January
Type of Average No. of Items
Sold (Daily) Only)
RTW's Purchased (Monthly)
Now that the cost of goods sold is now calculated, let us now
identify expenses that the business incurs in its operation. Operating
expenses such as Internet connection, Utilities like electricity and
miscellaneous expense are important to keep the business running. These
expenses are part of the total costs incurred by the business in its day-to-
day operation and are paid every end of the month. The operating expenses
and assumed amount are presented below:
Operating Expenses
Add: Internet Connection P 1,299.00
Utilities (Electricity) 800.00
Miscellaneous expense P
300.0
0
Total Operating Expense P 2,399.00
Table 6
Projected Monthly Costs (Year 1)
Fit Mo'to Ready to Wear Online Selling Business
Month January February March April May June
Cost of
Goods Sold 78,400.00 82,320.00 86,436.00 90,757.80 95,295.69 104,825.26
Cost of
Goods Sold 110,066.52 110,066.52 104,563.20 99,335.04 104,301.79 114,731.97
After learning the calculations presented, you can now compute the
projected costs by month on your business concept. Use the template below
and fill in the necessary figures based on the scenario.
Projected Volume
(A) F = (D x 30 days) J = (A x F)
90
Total
Table 5
Freight-in
paid
Projected Volume
No. of Items Average No. of Freight In (1 Month
Merchandise
Sold (Daily) Items Purchased Only
/ Products
(Monthly)
(A) F = (D x 30 days) J = (F/12) x *Ᵽ200.00
Total
Table 6
Projected Monthly Costs (Year 1)
Cost of
Goods Sold
Expenses
Total Cost &
Expenses
Cost of
Goods Sold
Expenses
Total Cost &
Expenses
What I Have Learned
What I Can Do
Total
Assessment
Now, that you have finished the module, let us check what you have
learned. Answer the questions given below by encircling the letter of the
correct answer.
1. Profit or Loss in computed by subtracting cost / expenses from –
a. Income/Revenue c. Sales
b. Sales Discount d. Operating expenses
2. Sales is an account title used to describe goods or merchandise sold
by a business. What nature of business uses Sales?
a. Servicing c. Merchandising
b. Barber Shop d. Both Servicing and Merchandising
3. Irene sells fashion bags online. She gets each bag for P 150.00 from a
local supplier. She then adds P 100.00 as mark-up for each bag. How
much is the selling price of each bag?
a. P 200.00 b. P 250.00 c. P 300.00 d. P 350.00
4. A merchandising business earns through –
a. Rendering services c. Donating products
b. Lending money d. Buys and sells goods
5. It is a tool that allows managers to make educated estimates on
revenue and costs of the business in order to cope up with
uncertainties of the future –
a. Estimating b. Guessing c. Forecasting d. Benchmarking
6. Which of the following businesses use Service Income in recording
revenues?
a. Beauty Salon b. Sari-sari store c. Movie House d. Hardware
7. Refers to the amount of merchandise or goods sold by the business for
a given period of time –
a. Operating Expense c. Deductions
b. Cost of Goods Sold d. Sales
8. Aling Coring sold 5 pieces of rugs. She bought the rugs for 20 pesos
and sold it for 35 pesos. How much is the total cost of goods sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00
9. Freight-in refers to the amount paid to transfer goods or merchandise
purchased from the .
a. Buyer to the supplier c. Buyer to buyer
b. Supplier to the buyer d. Supplier to supplier
10. The costs incurred through payment of utilities such as water,
electricity, internet connection is considered as –
a. Costs c. Operating expenses
b. Purchases d. Personal Expense of the owner
11. Nathaniel sells bottled water in a nearby city bus terminal. Every day
he can sell 30 pieces of bottled water at 20 pesos each. How much is
Nathaniel’ daily sales?
a. P 900.00 b. P 800.00 c. P 700.00 d. P 600.00
12. The amount added to the cost of a product to determine the selling
price is called –
a. Mark-up b. Discount c. Mark-down d. Sale
13. Lina sold all ten t-shirts for 1,500.00 pesos. Suppose she added 50.00
pesos as mark-up price for every t-shirt. How much was the cost for
every t-shirt sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00
14. Refers to goods and merchandise left at the end of operation or
accounting period.
a. Merchandise inventory, beginning c. Freight-in
b. Merchandise inventory, end d. Freight-out
15. The Total Cost and Expenses is calculated by –
a. Adding cost and expenses c. Adding revenue and expense
b. Subtracting expenses from costs d. Subtracting expense from revenue
Additional Activities
Now that you have learned how to forecast revenues and cost of the
business, investigate how these concepts are being applied by existing
businesses in your community. Using the table below, fill in the necessary
information based on your investigation.
Projected Projected
Volume Revenue
Projected
Cost Mark-up Selling (D) (E)
Costs of
per % Price Average
Merchandise Purchases
Unit (A) (B) (C) No. of
/ Products (Daily) (Daily)
Items
Sold
(Daily)
(B)= (A x C=A+
A D E=CxD K = (A x D)
.50) B
Ex. Bag 150.00 75.00 225.00 10 2250 1500