P

Entrepreneurship
Quarter 3
WEEK 3
Forecasting Revenues
and Costs Department
 Forecasting the cost to be
incurred
2

What’s In

You have learned in Lesson 1 that the revenue generated by selling

RTW’s has a corresponding amount of costs incurred. This cost was the amount
of RTW before adding its mark-up price. Each piece of t-shirt has a corresponding
cost of 90.00 pesos, while each pair of jeans has a corresponding cost of 230.00
pesos. These costs are incurred each time revenues are generated. On the other
hand, the business also incur costs in its operation, these costs are called
Operating Expenses. Operating expenses such as payment on Internet
connection, Utilities expense (i.e.Electricity), Salaries and Wages and
Miscellaneous are essential in the operation of the business; this allows the
business to continue operate in a given period of time.
Now that you have learned what cost is, let us identify the costs and
expenses incurred by the business in generating revenues.

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 sum 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 cost.
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:

Merchandise Inventory, beginning P XX.XX

Add: Net Cost of Purchases XX.XX
Freight-in XX.XX
Cost of Goods Available for Sale P XX.XX
Less: Merchandise Inventory, end XX.XX
Cost of Goods Sold P XX.XX

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

Cost per Unit Average No. of

Type of
Items Sold Projected Costs of
RTW's
(Monthly) Purchases (Monthly)
(A) F = (D x 30 days) K = (A x F)
T-Shirts 90.00 300 27,000.00
Jeans 230.00 180 41,400.00
Total 320.00 480 68,400.00

Table 5 shows how freight-in is calculated.

It is assumed that at an average, Ms. Nista pays at least 250.00 pesos for every
12 items delivered successfully by her supplier through a courier service. Since
her average order is 480 pieces every month, she pays:

480 pcs. / 12 pcs. x 250.00

40 x 250.00 = 10,000.00

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)

(A) F = (D x 30 days) J = (F/12) x 250

T-Shirts 10 300 6,250.00

Jeans 6 180 3,750.00

Total 16 480 10,000.00

Let us now substitute the values from table 4 and table 5. Since there is
no Merchandise Inventory, beginning and end, let us add Cost of Purchases and
Freight-in to get the Cost of Goods Sold.

CO_Q2_Entrepreneurship 12_Module 7
 Merchandise Inventory, beginning P 00.00
Add: Net Cost of Purchases 68,400.00
Freight-in 10,000.00
Cost of Goods Available for Sale P 78,400.00
Less: Merchandise Inventory, end 00.00
Cost of Goods Sold P 78,400.00

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 300.00
Total Operating Expense P 2,399.00

To calculate the total costs incurred by the business, cost of goods sold
and total operating expenses are then added. The calculation for the costs
incurred for the month of January is presented below:

Cost of Goods Sold P 78,400.00

Total Operating Expense P 2,399.00
Cost P 80,799.00

CO_Q2_Entrepreneurship 12_Module 7
 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

Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.75 2,648.69

Total Cost &
Expenses 80,799.00 84,766.98 88,931.92 93,303.64 97,892.44 107,473.95

Month July August September October November December

Cost of Goods
Sold 110,066.52 110,066.52 104,563.20 99,335.04 104,301.79 114,731.97

Expenses 2,701.66 2,755.70 2,810.81 2,867.03 2,924.37 2,982.85

Total Cost &
Expenses 112,768.19 112,822.22 107,374.01 102,202.06 107,226.16 117,714.82

Important
Assumption’s
February-
May Increase 5% from Previous Costs Peak
Months
June Increase 10% from Previous Costs
Non-peak
July-August Same Costs Months
September Loss 5% of Previous Costs
October Loss 5% of Previous Costs
November Increase 5% from Previous Costs Peak
December Increase 10% from Previous Costs Months

The projected monthly costs covering the first of operation of Ms. Nista’s
Fit Mo’to RTW Online Selling Business is presented in Table 6.

What’s More
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.

CO_Q2_Entrepreneurship 12_Module 7
 Mang Eduard operates a buy and sell business. He sells umbrellas in
his shop near the city mall. He gets his umbrellas from a local dealer. Each
umbrella costs 90.00 pesos each. Expecting rainy season to come, Mang Eduard
purchased 4 dozens of umbrellas every week. The supplier then charges 200.00
pesos per dozen for freight. Mang Eduard can sell 12 umbrellas every day.
Remember to use the factors to consider in projecting revenues and
refer to tables 4, 5 and 6 as your guide. Suppose Mang Eduard purchases and
sales is the same every month, fill in the necessary information in table 6.

Table 4
Projected Cost of Goods Sold (Monthly)

Projected Volume

Merchandise/ Cost per Unit Average No. of

Products Items Sold (Monthly) Projected Costs of
Purchases (Monthly)
(A) F = (D x 30 days) K = (A x F)

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)
F = (D x 30 days) J = (F/12) x *Ᵽ200.00

Total

CO_Q2_Entrepreneurship 12_Module 7
 Table 6
Projected Monthly Costs (Year 1)
Month January February March April May June

Cost of
Goods Sold

Expenses
Total Cost &
Expenses

Month July August September October November December

Cost of
Goods Sold

Expenses
Total Cost &
Expenses

What I Have Learned

The entrepreneur should always present the assumptions to consider in

projecting costs, may it be cost of goods sold or operating expenses. This will
help achieve the best educated estimates of your costs. The entrepreneur must
clearly identify costs incurred in the business operation. _ _ is
the amount of goods or merchandise sold during a period of time incurs a large
portion of the total cost of a _ _ business. The cost of goods
sold can be calculated by simply multiplying _ _ to its

corresponding _. A cost in transporting the goods from the

supplier to the seller or _ is then added to Net Cost of
Purchases.

CO_Q2_Entrepreneurship 12_Module 7
 What I Can Do
Now that you know how to calculate the projected costs of a business,
look around and interview any business existing in your community such as sari-
sari stores or buy and sell business. Using the table for Projected Costs of Goods
Sold (Daily) below. Fill in the necessary figures from the business you have
selected.

Projected Cost of Goods Sold (Daily)

Business Name:

Projected Volume
Goods/ Cost per Unit Average No. of Projected Costs of
Merchandise Items Sold (Daily) Purchases (Daily)

Total

CO_Q2_Entrepreneurship 12_Module 7