Forecasting

Revenues and
Costs
Objectives:
• 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.
Warm up test
Before starting with this module, let us see what you already know about forecasting revenues and costs. Answer the
questions below.

1. Refers to the amount added to the cost of a product to determine the selling price –

a. Revenue b. Cost c. Mark Up d. Mark Down

2. Aling Marta sells bibingka in her neighborhood, every day she can sell 45 pieces of bibingka at 20 pesos each. How much
is her daily revenue?

a. 900.00 b. 450.00 c. 800.00 d. 1000.00

3. It is a planning tool that helps entrepreneur copes up with uncertainties in the future operation of the business.

a. Revenue b. Selling c. Benchmarking d. Forecasting

4. The selling price of an item or merchandise is computed by adding cost per unit and __________?

a. Revenue b. Mark Up c. Discount d. Number of Items

Warm up test
5. Mang Berting is a fruit vendor selling at the local public market. He gets his mangoes from a supplier at 25 pesos per kilo
and sells it at 45 per kilo to his customers. How much mark-up was Mang Berting adding to his selling price?

a. 25.00 b. 30.00 c. 15.00 d. 20.00

6. Aling Elvie sells t-shirt at 175.00 pesos each. If each t-shirt costs 135.00 pesos, How much is the mark-up?

a. 30.00 b. 45.00 c. 40.00 d. 50.00

7. It is the result when sales exceed the cost to produce goods or render services –

a. Forecasting b. Selling c. Revenue d. Benchmarking

8. 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

Warm up test
9. Refers to goods and merchandise at the beginning of operation of business or accounting period.

a. Merchandise Inventory, end b. Merchandise Inventory, beginning c. Expenses d. Freight-in

10. Mang Lito sold 5 pairs of slippers. Suppose Mang Lito purchased the 5 pairs of slippers at P 30.00 each and pays P120.00
freight. Calculate how much is the cost of goods sold?

a. 220.00 b. 420.00 c. 270.00 d. 200.00

Forecasting
Revenues and
Costs
Forecasting is a tool used in planning that aims to support management or a business owner in its desire to adjust and
cope up with uncertainties of the future. Forecasting depend on data from the past and present and make meaningful
estimates on revenues and costs. Forecasting revenues and costs is the same as weather forecasting, though forecasting
revenues and costs is in the context of business. Entrepreneurs use forecasting techniques to determine events that
might affect the operation of the business such as sales expectations, costs incurred in the business as well as the profit
that the business is earning. Making informed estimates reduces risks that might be experienced by the entrepreneur in
the future.
Forecasting Revenues
of the Business
Making informed estimates requires careful considerations on several factors that might affect the outcome.
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.
 Identifying Essential Factors
The entrepreneur would want his/her forecasting for
Economic Conditions of the Country
his/her small business as credible and as accurate as
possible to avoid complications in the future. In When the economy grows, its growth is experienced by the consumers.
estimating potential revenue for the business, factors Consumers are more likely to buy products and services. The entrepreneur
such as external and internal factors that can affect must be able to identify the overall health of the economy in order to make
the business must be considered. These factors should informed estimates. A healthy economy makes good business.
serve as basis in forecasting revenues of the business.
These factors are:

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
 Identifying Essential Factors
The entrepreneur would want his/her forecasting for Changes Happening in the Community
his/her small business as credible and as accurate as
possible to avoid complications in the future. In Changes’ happening in the environment such as customer demographic,
estimating potential revenue for the business, factors lifestyle and buying behavior gives the entrepreneur a better perspective
such as external and internal factors that can affect about the market. The entrepreneur should always be keen in adapting to
the business must be considered. These factors should these changes in order to sustain the business. For example, teens usually
serve as basis in forecasting revenues of the business. follow popular celebrities especially in their fashion trend. Being able to
These factors are: anticipate these changes allows the entrepreneur to maximize sales potential.

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 labor 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 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.

Table 1
Projected Daily Revenue
Fit Mo'to Ready to Wear Online Selling Business

Projected Volume Projected Revenue

(D) (E)
Cost per Unit (A) Mark-up 50% (B) Selling Price (C)
Type of RTW's 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 multiplying 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
 Table 2
Projected Monthly and Yearly Revenue
Fit Mo'to Ready to Wear Online Selling Business

Projected Volume Projected Revenue Projected Volume Projected Revenue

(E)
Type of RTW's Selling Price
Average No. of
Items Sold (Monthly) Average No. of (Yearly)
(Monthly) Items Sold (Yearly)

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

T-Shirts 135.00 300 40,500.00 3650 492,750.00

Jeans 345.00 100 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

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 March March 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 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.
Now, try it!
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.
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.
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.
Forecasting The
Costs to
be Incurred
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.
Costs and Expenses incurred by the Business
Cost of Goods Sold / Cost of Sales Merchandise Inventory, beginning Purchases

Refer to the amount of merchandise Refers to goods and merchandise at The selling price is calculated by
or goods sold by the business for a the beginning of operation of adding the cost per unit and the
given period of time. This is business or accounting period. mark-up. This price must be
computed by adding the beginning competitive in the market while still
inventory to the Net Amount of providing a reasonable profit
Purchases to arrive with Cost of margin.
goods available for sale from which
the Merchandise Inventory end is
subtracted.
Costs and Expenses incurred by the Business
Merchandise Inventory, end Freight-in

Refers to goods and merchandise left Refers to amount paid to transport

at the end of operation or accounting goods or merchandise purchased
period. 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.
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
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.
Do 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.