ENTREPRENEURSHIP

Week 3-4
Forecasting Revenues and Costs
Profit Computation
 Forecast the revenues of
the business.
CS_EP11/12ENTREP-0h-j-14

OBJECTIVE Forecast the costs to be

incurred.
S: CS_EP11/12ENTREP-0h-j-15

Compute for profits.

CS_EP11/12ENTREP-0h-j-16
Based on the videoclip, what
is the difference between
revenue and profit?
REVENU
E vs.
COST
Revenue

 is the money received from normal

business operations such as in
rendering a service or selling of
products to customers.

 in a service type of business,

revenue is called Service
Revenue or Service Income.

 in a merchandising (buy and sell)

type of business, revenue is called
Sales.
 revenue is recognized or
recorded when earned,
whether paid in cash or
charged to the account of
the customer.
 Examples:
a. CSS Computer Repair Shop repaired the laptop
of Mrs. Guba. CSS charged and collected from
her ₱780.00 as payment for the labor fee. This
₱780.00 is called a Service Revenue or
Service Income.

b. ABM Store sold 5 kilos of rice @ ₱60.00/kilo or

₱300.00 (5x ₱60.00) to Mrs. Bakal. It also sold 7
cans of sardines @ ₱30.00/can or ₱210.00 (7x
₱30.00) to Mr. Gwapo. The total cash received
amounting to ₱510.00 is called Sales Revenue.
REVENUE FORECASTING
Revenue Forecast
refers to the process of estimating and projecting future
sales or income for a specific period.
it is a financial planning tool that assists companies in
setting realistic revenue goals and devising strategies to
achieve them.
by predicting future revenues, organizations can make
informed decisions about resource allocation, budgeting,
and growth strategies.
plays a crucial role in the overall financial planning and
decision-making processes of businesses.
 In estimating potential revenue for the business,
external and internal 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
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 behavior
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 everyday; therefore, he 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 labor and also the number of
salespersons determine the amount of revenues
Example-Revenue Forecasting
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. From the information
gathered, Ms. Nista projected the revenue of her Fit Mo’to Ready to Wear
Online Selling Business.

She gets her supplies from a local RTW dealer in the city. The cost per
piece of t-shirt is ₱90. She then adds a 50% 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 in getting the mark up price is as
follows:
Mark Up Price = Cost X desired mark up percentage

Example:
Mark-Up for T-shirt = ₱ 90.00 x 50% or .50
= ₱ 45.00
In calculating for the Selling Price, the formula is
as follows:

Selling Price = Cost + Mark-Up

= ₱ 90.00 + ₱ 45.00
= ₱ 135.00

Therefore, each T-shirt is sold at ₱135.00

Assumption1:
 If the online store of Ms. Nista sells T-Shirts at an
average of 10 pcs./day with a selling price of
₱135/pc., the amount of daily revenue is computed
as:

Daily Revenue =No. of pcs. sold x Selling Price

= 10 x ₱135
= ₱1,350.00
Assumption2:
 If a 1-month revenue is to be projected, the
computation would be:

Monthly Revenue = Daily Revenue x 30 days

= ₱1,350 x 30
= ₱40,500.00
Assumption 3:
 Assume that a 5% increase every month is the entity’s target.
The projected monthly and annual revenue is computed as:

Projected
Revenue = (Monthly Revenue X desired % of increase)+ MR
= (₱40,500 x .05)+ ₱40,500 or ₱40,500 x1.05
= ₱2,025 + ₱40,500
= ₱42,525 - February

Note:
MR-Monthly Revenue
Below is the monthly revenue forecast-12 months:

JAN. FEB. MAR APR MAY JUNE

₱40,500 42,525 44,651.25 46,883.81 49,228 51,689.40

JULY AUG SEPT OCT NOV DEC

54,273.87 56,987.56 59,836.94 62,828.79 65,970.23 70,268.74

Therefore, the Projected Annual Revenue is ₱645,643.60

(add all the monthly projected revenue from Jan.-Dec.)
Activity:
Suppose you wanted to start a merchandising business in your
community, list the product/s you wanted to sell and determine its
mark-up and selling price. Use the same formula for calculation
found on the above table. Merchandise/ Product Cost per Unit
Mark Up Selling Price.

Cost per
Merchandise/ Product Mark Up Selling Price
Unit
1
2
FORECASTING
COST
Cost
 refers to the amount of money used to
produce or manufacture goods as well
as expenses incurred in selling goods
or merchandise.
Examples:
 the cost of raw materials or ingredients in
baking a cake
 the expenses incurred in water and
electricity bills (utilities)
 the transportation fee in buying or selling
products
 the salaries and wages of employees or
workers
 the commissions paid to sales agents,
etc.
In a merchandising type
of business, cost include:

a. Cost of Goods Sold

b. Operating Expenses
 Revenue generated by selling
products has a corresponding
amount of costs incurred.

 This cost was the amount of

product before adding its mark-
up price. Like a piece of t-shirt
that has a corresponding cost
of ₱90.00. This cost is incurred
each time revenues are
generated.
Cost of Goods Sold (COGS)
is the total cost a business has paid out
of pocket to sell a product or service. It
represents the amount that the business
must recover when selling an item to
break even before bringing in a profit.

includes any direct costs that a business

incurs in the manufacture, purchase and
sale or resale of products.
Example:
ABM Store sold 100 pcs. T-shirts with a selling price of ₱375/pc.
or a total of ₱37,500. The cost of each T-shirt is ₱150/pc.

The Cost of Goods Sold of 100 T-shirts is ₱15,000.00 (100pcs.

x ₱150). This is the original cost/amount paid in purchasing T-
Shirts from its supplier. The COGS in this example also
represents 40% of Sales (₱15,000/₱37,500).

Sales ₱37,500 - 100% (cost + desired mark-up of 250%)

Less: Cost of Goods Sold (15,000) - 40%
Gross Profit ₱22,500 - 60%
Formula in computing the COGS:
Merchandise Inventory, beginning ₱xx
Add: Net Cost of Purchases xx
Freight-in xx
Cost of Goods Available for Sale xx

Less: Merchandise Inventory, end (xx)

Cost of Goods Sold ₱xx
Simply put, the Cost of Goods Sold is
calculated by simply multiplying the
number of items sold to its
corresponding cost per unit.
 On the other hand, the business also incur costs
in its operation, these costs are called Operating
Expenses.

 Examples of Operating expenses are:

 payment on Internet connection
 Utilities expense (i.e. Electricity)
 Salaries and Wages
 Miscellaneous

These are essential in the operation of the

business; this allows the business to continue
operate in a given period of time.
In identifying the costs and expenses incurred by the
business, the following terms must be understood.

 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 t-shirts from a
supplier for resell
 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
 The revenue generated and expenses incurred by the business is
computed monthly or annually.

 These expenses are deducted from the revenue to determine the result
of the business operations for a given period.

 If revenue is higher than expenses, the result is called Net Income or

Net Profit. On the other hand, if expenses are higher than revenue, the
result is called Net Loss.

 The financial report that shows the revenue and expenses of the
business is called Income Statement or Statement of Profit and Loss.
Preparing this report is important to know and measure the performance
of the company. This will help business owners or investors evaluate if
the business is doing well or not.
Example 1: Income Statement of a Service Business :
CSS Computer Repair Shop
Income Statement
For the month ended January 31,2024

Service Revenue ₱27,500.00

Less: Expenses
Salaries and Wages ₱9,500.00
Utilities Expense 1, 253.50
Office Supplies Expense 714.00
Advertising Expense 590.00
Transportation Expense 150.00
Total Expenses (12,207.50)
Net Income ₱15,292.50
Example 2: Income Statement of a merchandising business :
ABM Store
Income Statement
For the month ended January 31,2024

Sales ₱37,500.00
Less: Cost of Goods Sold (15,000.00)
Gross Profit 22,500.00
Less: Operating Expenses:
Salaries and Wages ₱9,500.00
Utilities Expense 1, 253.50
Office Supplies Expense 714.00
Rent Expense 1,000.00
Transportation Expense 150.00
Total Operating Expenses (12,617.50)
Net Income ₱9,882.50
Computation of the Projected Expenses per
Quarter of 2024::
In example 1, let us assume that the ABM Store
projected that expenses every quarter will increase by
10%.

So, by 1st quarter (Jan.-Mar.) expenses per month is

₱12,207.50.

On the 2nd Qtr. (April-June) it will increase by 10%, until

the succeeding quarters.
Computation of the Projected Expenses per Quarter of 2024:

Q1(January, February, March) refer to Income Statement = ₱12,207.50

Q2(April, May, June) (₱12,207.50X10%)+ ₱12,207.50 = 13,428.25
Q3 (July, August, September) ₱13,428.25 X 1.10 = 14,771.08
Q4 (October, November, December) ₱14,771.08 x1.10 = 16,248.18
Total Projected Expenses for year 2024 = ₱56,655.28

Note:
100% principal + 10% increase every quarter = 1.10
Computation of Profit:
 Net Income or Net Profit results if Revenue is greater than
Expenses.

 On the other hand, if Revenue is lower than Expenses, the result is

called Net Loss.

 To compute profit, Revenue is deducted by Expenses.

Revenue – Expenses = Net Income or Net Profit

(Pls. refer to Income Statement example for a detailed example of Net Income
computation)
Activity:
TVL Auto Services provided you the following data at the end of March, 2024:

Service Income ₱100,500.00; Office Supplies Expense ₱12,450; Salaries

Expense ₱25,740; Utilities Expense ₱1,850; Transportation Expense ₱575; Rent
Expense ₱2,800; Insurance Expense ₱17,000; Fuel and Oil Expense ₱3,500.00

Requirement
1. Compute the net income/profit at the end of March 31,2024
2. Project the revenue for April, May and June assuming an increase of 8% per
month is expected.
3. Project the expenses for April, May and June assuming a 5% increase is
expected due to inflation.