Saint Francis College

Pascual B. Gutay St., Allen, N. Samar

LEARNING MODULE IN ENTREPRENEURSHIP 1

MODULE 7.1
FORECASTING THE COSTS TO BE
INCURRED

WEEK: (ONE WEEK: APRIL 19-23, 2021)

GRADE LEVEL: 11
LEARNING COMPETENCIES:
- FORECAST THE COSTS TO BE INCURRED
- COMPUTE FOR PROFITS TLE_ICTAN11/12EM-Ia-2

I. CONCEPT

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.

II. EXAMPLES AND DISCUSSION

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

Type of Cost per Unit Projected Volume

RTW's Average No. of
Items Sold
Projected Costs of Purchases
(Monthly) (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

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

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

______________________________________________________________________________________________
III. ACTIVITY/EXERCISE
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

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

IV. EVALUATION
Now, that you have finished the module, let us check what you have learned. Answer the questions given below by
choosing the correct answer. Write the letter only.

1. Profit or Loss in computed by subtracting cost / expenses from –

a. Income/Revenue c. Sales
b. Sales Discount d. Operating expenses

2. Sales is an account title used to describe goods or merchandise sold by a business. What nature of business
uses Sales?
a. Servicing c. Merchandising
b. Barber Shop d. Both Servicing and Merchandising

3. Irene sells fashion bags online. She gets each bag for P 150.00 from a local supplier. She then adds P 100.00
as mark-up for each bag. How much is the selling price of each bag?
a. P 200.00 b. P 250.00 c. P 300.00 d. P 350.00

4. A merchandising business earns through –

 a. Rendering services c. Donating products
b. Lending money d. Buys and sells goods

5. It is a tool that allows managers to make educated estimates on revenue and costs of the business in order to
cope up with uncertainties of the future –
a. Estimating b. Guessing c. Forecasting d. Benchmarking

6. Which of the following businesses use Service Income in recording revenues?

a. Beauty Salon b. Sari-sari store c. Movie House d. Hardware

7. Refers to the amount of merchandise or goods sold by the business for a given period of time –
a. Operating Expense c. Deductions
b. Cost of Goods Sold d. Sales

8. Aling Coring sold 5 pieces of rugs. She bought the rugs for 20 pesos and sold it for 35 pesos. How much is the
total cost of goods sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00
9. Freight-in refers to the amount paid to transfer goods or merchandise purchased from the _________.
a. Buyer to the supplier c. Buyer to buyer
b. Supplier to the buyer d. Supplier to supplier

10. The costs incurred through payment of utilities such as water, electricity, internet connection is considered as
–
a. Costs c. Operating expenses
b. Purchases d. Personal Expense of the owner