Republic of the Philippines

Department of Education
Region V (Bicol)
Schools Division Office of Albay
DARAGA NATIONAL HIGH SCHOOL
Sagpon, Daraga, Albay

ENTREPRENEURSHIP

This lesson is divided into two:

Lesson 1 – Forecasting the revenues of the business
Lesson 2 – Forecasting the costs to be incurred

Lesson Forecasting the Revenues of the

1 Business

In this lesson, you will be making informed estimates about revenues and calculated estimates
involving costs incurred by the business. Factors affecting forecasting will be discussed to better help you
in making projections.
At the end of this lesson, you are expected to:
• Identify essential factors in forecasting revenues and costs;
• Calculate mark-up and selling price of a product or merchandise;
• Compute projected revenues;
• Compute projected costs.
• Create a table showing projected revenue and costs.

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.

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 1

 Pre-test - 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

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

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 2

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 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 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 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 tshirts 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.
ENTREPRENEURSHIP – Forecasting Revenues and Costs | 3
 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.

Table 1
Projected Daily Revenue
Fit Mo'to Ready to Wear Online Selling Business
Type of Cost per Mark-up Selling Projected Projected
RTW's Unit 50% Price Volume Revenue
(A) (B) (C) (D) (E)

Average
No. of
(Daily)
Items Sold
(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

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 4

 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

Table 2
Projected Monthly and Yearly Revenue
Fit Mo'to Ready to Wear Online Selling Business

Type of Selling Projected Projected Projected Projected

RTW's Price Volume Revenue Volume Revenue

Average Average No. of

No. of Items Items Sold
(Monthly) (Yearly)
Sold (Yearly)
(Monthly)

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

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 5

 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 102,600.00 107,730.00 113,116.50 118,772.33 124,710.95 137,182.04

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.

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 6

 Activity 1 - 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 ___________________________
Merchandise/ Cost per Mark-up Selling Projected Projected
Products Unit ____% Price Volume Revenue
(A) (B) (C) (D) (E)

Average No. of
Items
(Daily)
Sold (Daily)

(A) (B)= (A x (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.
Table 2
Projected Monthly and Yearly Revenue
Name of Business ___________________________
Merchandise/ Selling Projected Projecte d Projected Projected
Products Price Volume Revenue Volume Revenue

Average No. of Average No. of

Items Sold Items Sold
(Monthly) (Yearly)
(Monthly) (Yearly)

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

(A+B)

Total

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 7

 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

Activity 2 – 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 slowdown or changes in customer 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.

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 8

 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.

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.

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 9

 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:

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.
ENTREPRENEURSHIP – Forecasting Revenues and Costs | 10
 Table 4
Projected Cost of Goods Sold (Monthly)
Fit Mo'to Ready to Wear Online Selling Business
Type of Cost per Unit Projected Volume
RTW's
Average No. of
Items Sold
(Monthly) Projected Costs of 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
Type of No. of Items Projected Volume Freight In (January
RTW's Sold (Daily) Average No. of Items Only)

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

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 11

 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.

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.

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

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

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

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 12

 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

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

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

Activity 3 - 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 dozen 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)

Merchandise/ Cost per Unit Projected Volume

Products
Average No. of Items Sold
(Monthly)
Projected Costs of Purchases
(Monthly)
(A) F = (D x 30 days) J = (A x F)

90

Total

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 13

 Table 5
Freight-in paid
Merchandise/ No. of Items Projected Volume Freight In (1 Month
Products Sold (Daily) Average No. of Only

Items Purchased
(Monthly)

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

Total

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

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 14

 Activity 4 - 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.

Activity 5 - 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: ______________________

Goods/ Merchandise Cost per Unit Projected Volume

Average No. of Items Sold

(Daily) Projected Costs of
Purchases (Daily)

Total

Congratulations!!!!

Prepared by:

VIRGILIO C. MALLAPRE
Subject Facilitator

ENTREPRENEURSHIP – Forecasting Revenues and Costs | 15