Entrepreneurship

Quarter 2 - Module 7
Forecasting Revenues and Costs Department
 Lesson Forecasting the Revenues of the
1 Business

What’s In

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.

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 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

Making informed estimates requires careful considerations on several factors

that might affect the outcome of your travel such as, distance from home to school,
the means of transportation you will be taking, the number of passengers and etc.
Traveling from home to school on regular basis had helped you arrive with an estimate
that was very close to the actual time of arrival.
Considering these factors are essential in making informed estimates by the
entrepreneur. Since the business he/she is venturing hasn’t started yet, it is important
that these factors affecting forecasting will be determined to better help him/her in
making the best decisions for the business.
The entrepreneur after realizing the potential for profit of his/her business
concept, the next step is to estimate how much the revenue is on daily, monthly and
annual basis. Before going to forecasting and projecting the revenues of the business,
let us determine first what revenue is.
Revenue is a result when sales exceed the cost to produce goods or render
the services. Revenue is recognized when earned, whether paid in cash or charged
to the account of the customer. Other terms related to revenue includes Sales and
Service Income. Sales is used especially when the nature of business is
merchandising or retail, while Service Income is used to record revenues earned by
rendering services.
You have just learned about what revenue is. This time, let us study the
various factors to consider in forecasting revenues.
The entrepreneur would want his/her forecasting for his/her small business
as credible and as accurate as possible to avoid complications in the future. In
estimating potential revenue for the business, factors such as external and internal

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factors that can affect the business must be considered. These factors should serve
as basis in forecasting revenues of the business. These factors are:
1. The economic condition of the country. When the economy grows, its growth
is experienced by the consumers. Consumers are more likely to buy
products and services. The entrepreneur must be able to identify the overall
health of the economy in order to make informed estimates. A healthy
economy makes good business.
2. The competing businesses or competitors. Observe how your competitors
are doing business. Since you share the same market with them, information
about the number of products sold daily or the number of items they are
carrying will give you the idea as to how much your competitors are selling.
This will give you a benchmark on how much products you need to stock
your business in order to cope up with the customer demand. This will also
give you a better estimate as to how much market share is available for you
to exploit.
3. Changes happening in the community. Changes’ happening in the
environment such as customer demographic, lifestyle and buying behaviour
gives the entrepreneur a better perspective about the market. The
entrepreneur should always be keen in adapting to these changes in order
to sustain the business. For example, teens usually follow popular celebrities
especially in their fashion trend. Being able to anticipate these changes
allows the entrepreneur to maximize sales potential.
4. The internal aspect of the business. Another factor that affects forecasting
revenues in the business itself. Plant capacity often plays a very important
role in forecasting. For example, a “Puto” maker can only make 250 pieces
of puto every day; therefore he/she can only sell as much as 250 pieces of
puto every day. The number of products manufactured and made depends
on the capacity of the plant, availability of raw materials and labour and also
the number of salespersons determines the amount of revenues earned by
an entrepreneur.

Now that all factors affecting forecasting revenues are identified, you can now
calculate and project potential revenues of your chosen business. The table below

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shows an example of revenues forecasted in a Ready to Wear Online Selling
Business.
Example: Ms. Fashion Nista recently opened her dream business and named
Fit Mo’to Ready to Wear Online Selling Business, an online selling business which
specializes in ready to wear clothes for teens and young adults. Based on her initial
interview among several online selling businesses, the average number of t- shirts sold
every day is 10 and the average pair of fashion jeans sold every day is 6. From the
information gathered, Ms. Nista projected the revenue of her it Fit Mo’to Ready to
Wear Online Selling Business.
She gets her supplies at a local RTW dealer in the city. The cost per piece
of t-shirt is 90 pesos, while a pair of fashion jeans costs 230 pesos per piece. She then
adds a 50 percent mark up to every piece of RTW sold.
Mark up refers to the amount added to the cost to come up with the selling
price. The formula for getting the mark up price is as follows:

Mark Up Price = ( Cost x desired mark up percentage)

Mark Up for T-shirt = ( 90.00 x .50)
Mark Up for T-shirt = 45.00

In calculating for the selling price, the formula is as follows:

Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00

Table 1 shows the projected daily revenue of Ms. Nista’s online selling
business. Computations regarding the projected revenue is presented in letters
in upper case A, B, C, D, and E.

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 Table 1
Projected Daily Revenue
Fit Mo'to Ready to Wear Online Selling Business
Projected
Projected
Volume
Revenue
Cost per Mark-up Selling (D)
(E)
Type of Unit (A) 50% Price Average
RTW's (B) (C) No. of
Items Sold (Daily)
(Daily)
(A) (B)= (A x .50) (C)= (A+B) (D) (E) =(C x D)
T-Shirts 90.00 45.00 135.00 10 1,350.00
Jeans 230.00 115.00 345.00 6 2,070.00
Total 320.00 160.00 480.00 16 3,420.00

Table 2 shows the projected monthly and yearly revenue of Ms. Nista’s online
selling business. Computations about the monthly revenue is calculated by multipying daily
revenues by 30 days ( 1 month).
Example, in table 1 the daily revenue is 3,420.00. To get the monthly projected
revenue it is multiplied by 30 days. Therefore,
Projected Monthly Revenue = Projected daily revenue x 30 days
Projected Monthly Revenue = 3,420.00 x 30
Projected Monthly Revenue = 102,600.00
On the other hand, the projected yearly revenue is computed by multiplying the
monthly revenue by 12 months. The calculation for projected yearly revenue is as
follows.
Projected Yearly Revenue = Projected daily revenue x 365 days
Projected Yearly Revenue = 3,420.00 x 365
Projected Yearly Revenue = 1,248,300.00

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 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 30 H= (D x 365
(C)= (A+B) G= (C x F) I= (C x H)
days) days)

T-Shirts 135.00 300 40,500.00 3,650 492,750.00

Jeans 345.00 180 62,100.00 2,190 755,550.00

Total 480.00 480 102,600.00 5,840 1,248,300.00

Table 3 shows the projected monthly revenues covering one year of operation.
The table shows an average increase of revenue every month by 5 percent except June,
July to October and December. While the month of June has twice the increase from
previous month, 10 percent. Let us consider that months covering July to October are
considered to be Off-Peak months, therefore sales from July to October are expected to
decrease. It is assumed that there is no increase in revenue from July to August while from
August to October the decrease in revenues is 5 percent from previous month. Since
revenues from sales of RTW’s are considered to be seasonal, it assumed that there is 10
percent increase in revenue from November to December.

Computation for assumed increase of revenue on specific months is as follows:

Projected Monthly Revenue (Increase) = Revenue (January) x 5 % increase
Projected Monthly Revenue (Increase) = 102,600.00 x .05
Projected Monthly Revenue (Increase) = 5,130.00

Projected Revenue for February = Revenue (January) + Amount of increase

Projected Revenue for February = 102,600.00 + 5,130.00
Projected Revenue for February = 107,730.00

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 On the other hand, decrease in revenue is computed as follows:
Projected Monthly Revenue (Decrease) = Revenue (August) x 5 % increase
Projected Monthly Revenue (Increase) = 144,041.14 x .05
Projected Monthly Revenue (Increase) = 7,202.06

Projected Revenue for September = Revenue (August) - Amount of decrease

Projected Revenue for September = 144,041.14 – 7,202.06
Projected Revenue for September = 136,839.08
Table 3
Projected Monthly Revenue
Fit Mo'to Ready to Wear Online Selling Business
Month January February March April May June
Revenue 102,600.00 107,730.00 113,116.50 118,772.33 124,710.94 137,182.04

Month July August September October November December

Revenue 144,041.14 144,041.14 136,839.08 129,997.13 136,496.98 150,146.68

Important Assumptions:
February to May Increase of 5% from previous revenue

June Increase of 10% from previous revenue

July to August The same Revenue

September to October Loss 5% from previous revenue

November Increase 5% from previous revenue

December Increase 10% from previous revenue

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.

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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.
Table 1
Projected Daily Revenue
Name of Business
Projected
Projected
Cost Volume
Mark-up Selling Revenue
per (D)
_% Price (E)
Merchandise/ Unit Average No.
(B) (C)
Products (A) of Items
(Daily)
Sold (Daily)
(B)= (A x
(A) (C)= (A+B) (D) (E) =(C x D)
.50)

Total

Use the calculations you have made in Table 1 to successfully complete

the information in Tables 2 and 3 and calculate the projected monthly and yearly
revenue of Aling Minda’s business.

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 Table 2
Projected Monthly and Yearly Revenue
Name of Business
Projected Projecte Projected
Projected
Volume d Volume
Selling Revenue
Average No. Revenue Average No. of
Merchandise/ Price
of Items Sold Items Sold
Products
(Monthly) (Yearly)
(Monthly) (Yearly)
(C)= F= (D x 30
G= (C x F) H= (D x 365 days) I= (C x H)
(A+B) days)

Total

For Table 3, use the following assumed increases in sales every month.
From January to May, 5 percent increase from previous sales. For the month of June,
10 percent increase from previous sales. For the months July to December, record the
same sales every month.
Table 3
Projected Monthly Revenue
Name of Business
Month January February March April May June

Revenue

Month July August September October November December

Revenue

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What I Have Learned

Entrepreneurs use techniques to determine events that

might affect the operation of the business. Factors such as

and
much be considered to avoid possible complications in the future. To
forecast revenues, it is best that the entrepreneur must be acquainted with the
, and to determine the selling price of a product. This way, the
selling price is then multiplied to the projected volume to arrive with the
.
The entrepreneur should always present the assumptions to consider in
projecting revenues, may it be seasonality, economic slow down or changes in
costumer preferences and the like. This will help achieve the best educated estimate
of your revenues

What I Can Do

It is understood that you now know how to calculate mark-up and selling price
of an item or merchandise. Let us try the following situation to see if you have
understood the concepts.
Kyle, a local entrepreneur is planning to sell 10 liter bottled water in his sari-
sari store. A local water purifying business in the city sells their 10 liter bottled water
for 20 pesos each. Kyle wants to add 25 per cent mark up from the original cost of 10
liter bottled water. Calculate how much mark-up Kyle should add. Determine how much
should be the selling price for 10 liter bottled water.

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 Lesson Forecasting the Costs to be
2 Incurred

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 incurs 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.

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 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.

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 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:

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.

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 Table 4
Projected Cost of Goods Sold (Monthly)
Fit Mo'to Ready to Wear Online Selling Business
Projected Volume
Average No. of
Type of Cost per Unit
Items Sold Projected Costs of
RTW's
(Monthly) Purchases (Monthly)
(A) F = (D x 30 days) J = (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. = 40
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) K = (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.

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 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

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.

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 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

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.
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.

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 Table 4
Projected Cost of Goods Sold (Monthly)

Projected Volume

Merchandise/ Cost per Unit Average No. of Projected Costs of

Products Items Sold (Monthly) Purchases (Monthly)
(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

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 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 entreprenuer 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.

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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