ENTREPRENEURSHIP

INGRID P. ALDE
Subject Teacher
Directions: Jumbled Letters: Guess the word

FPIOTR NEVREUE
SXNEPESE AFRETCSO
 TOPIC: REVENUE AND COSTS FORECAST
Module: 4 Week: 16 Quarter: 2nd

LEARNING COMPETENCIES: OBJECTIVE/S

1. Forecast the costs to be incurred compute for
1. Learners will be able to define
profits.
revenue and costs forecast.
2. Learners will be able to know how to
forecast the revenues of the business.
3. Learners will be able to know the
importance of forecasting the cost
to be incurred and computing profits.
 INTRODUCTION

According to infoentrepreneurs.org making a profit is one

of the most important objectives of a business. Calculating
your profit can not only help you determine your level of
success, it also provides information about where your
business is making money and where you are spending
it.
WHAT IS REVENUE?

It is the total amount of income generated by the sale

of goods or services related to the company's
primary operations. Revenue, also known as gross
sales, is often referred to as the "top line" because it sits
at the top of the income statement.
https://www.investopedia.com
 HOW TO CALCULATE REVENUE

You can calculate your business profit by subtracting your total expenses from your total
revenue. To identify what the revenues and expenses are, start by choosing the time period
you want to study. Businesses generally study a twelve month period, such as January 1
to December 31 or July 1 to June 30.
The selection depends upon:
•the nature of your business
•your personal preference
•possible tax considerations
Keeping records that are accurate, up-to-date, and easy to use is essential to obtaining a
precise count of your profits.
TERMILOGIES TO REMEMBER IN
FORECASTING REVENUE

 Market Size – the number of individuals who would potentially buy

your products in a market segment.
 Cost price – the price of the product that covers its production and
distribution costs. For a merchandising business, it is the price when
you buy the product.
 Mark-up – the amount added to the product to obtain a profit.
 Selling Price – the price of the product when mark-up is added to the
cost price.
HOW TO COMPUTE SELLING PRICE FOR
MERCHANDISING BUSINESS
Selling Price. To compute the selling price, you need
to know the cost price of the product, determine
how much mark-up expressed in percentage are
you going to add.
For a Merchandising Business: Suppose that the
cost price of the products that you bought are as
follows, compute their selling price given a mark-up
of 30%
SP = CP x (1+MU) Example Product A:

Denotation: SP = Selling Price Formula: SP = CP x (1+MU)

SP = P 35 x (1+ 0.3)
CP = Cost Price
= P 35 x 1.30
MU= Mark-up (*Convert to decimal = 45.50
 HOW TO COMPUTE SELLING PRICE FOR
MANUFACTURING BUSINESS

For a Manufacturing Business:The cost price or the PUC

(Per Unit Cost) of the product can be computed by
understanding different production costs. To better
understand this we need to first immerse ourselves to terms DC = P1,000 + P250 = P1,250
such as TPC (TOTAL PRODUCTION COST), DC (DIRECT TPC = P1,250 + P500 = P1,750
COSTS), DM (DIRECT MATERIALS), DL(DIRECT PUC = P1,750 / 200 sticks = P8.75 per stick of
LABOR), OHC (OVERHEAD COST), PUC (Per Unit Cost) Barbecue
and TQP(Total Quantity Produced. suppose that we want 38% mark-up for our
Consider basic formulae below: barbecue, how much are we going to sell it
per stick?
DC = DM+DL
Formula: SP = CP x (1+MU)
TPC = DC + OHC SP = P 8.75 x (1+ 0.38)
= P 8.75 x 1.38
PUC = TPC/TQP
= 12.08
HOW TO COMPUTE SALES

We simply compute sales by multiplying the Selling Price to the actual quantity sold for a start-up
like yours, you may use the estimated quantity to be sold.
See formula below: S = SP x QS

For a Manufacturing Business: Suppose that the entire barbecue sticks were sold out, how much
would be the sales?
Sales = P12.8 x 200 sticks
= P2,416.00
For a Merchandising Business:
Now let us try computing the
sales for the products illustrated
above from merchandising. See
below data on the quantity sold
for the products below:

formula below: S = SP x QS
TWO (2) GENERAL TYPES OF REVENUE

1. Sales Income/Revenue – income that is generated by

selling a tangible products or we simply call it as goods, items,
merchandise etc.
2. Service Income/Revenue – income that is generated by
rendering a service such for example when a dentist gives a
dental service, or a spa gives a massage to a client
Forecasting of Costs and Expenses

We are done with the forecast of revenue but we cannot compute profit
unless we try to enumerate first the expenses to be incurred along the
way of creation of values both for a tangible goods and a service-
oriented business. You may notice from above that we have included
both costs and expenses, for this purpose we will use expense to
compute the profit, but why have we included costs? Is it the same
with expenses? The answer is NO they may be mingled as same term
but we need to understand that they are not the same.
WHAT IS COST?

Cost is an expenditure wherein it speaks of acquisition of things

needed for the firm such as the equipment, building, machineries,
supplies, merchandise among others however they may not yet be
consumed so the treatment for them is yet an asset until such time
that they are used and consumed that they become expenses. For
example, you bought the machine for a certain cost; it cannot be called
expense yet until such time that you use the machine.
Common expenses that a firm may incur:

o Cost of Sales/Cost of Goods Sold – o Rent Expense

the cost of the product sold or o Maintenance and Repairs
manufactured o Depreciation
o Salaries and Wages
o Operating Expenses/Administrative
o Advertising
and Advertising – expenses incurred
o Others: - interest - Tax
in a normal business operation
o Supplies Expense –
o Utilities Expense
Now that we have established the common expenses, we can now proceed to
computing the profits. Profit is simply the excess of Total Income less Total
Expenses. If income is greater than Expenses the firm would have process
otherwise, losses shall be incurred. If income is equal to expenses, it results
to what we call Breakeven. See the illustration below.
Sample of Statement of Comprehensive
Income.

We may use the merchandising example above to illustrate and Income

Statement/Profit & Loss Statement then and now called Statement of
Comprehensive Income. Suppose that it was the income of ABC
Merchandising for the Month of August 200X and the following were the
expenses, we can come up with an Income Statement.
NOTE: The cost of goods sold (GOGS) is the
sum of all direct cost associated with making a
product. It appears on an income statement and
typically includes money spent on raw materials
and labour. It does not include coss associated
with marketing, sales or distribution.
 ACTIVITY TIME
Module: 4 Week: 16 Quarter: 2 nd
Directions: Compute the Selling Price for
Merchandising Business

ANSWERS:
Thank you and Happy
Learning.