Name: Grade & Section:

Lesson 1

Forecasting Revenues, Costs, and

Profit
MELC: Forecast the revenues of the business; Forecast the costs to be incurred; and
Compute for profits. (TLE_ICTAN11/12EM-Ia-2)

Objectives: 1. Define revenue and cost;

2. Identify factors in forecasting revenues and costs of the business; and
3. Compute for profits.

Let’s Explore and Discover

Judgement Forecasting – using

your own intuition and
Unlocking experience as the business
of Difficulty owners set a general pattern of
the income and expenses for
Forecasting- is a the year.
method to predict the
future, an estimate Quantitative Forecasting – is
or prediction of more scientific because it uses
future developments actual and past income and
in business such as expense data from your own
sales, expenditures, business or other businesses
and profits. in your industry as a basis for
tracking trends and predicting
changes.

In real life situation as entrepreneurs, there are times when you do not need to give
the exact figures of profit/loss of the business. We just use estimation or forecasted
amount that is close enough to the real figures.

Revenue

- is the amount of money that a company receives during a specific period, including
discounts and deductions for returned merchandise.
- is calculated by multiplying the price at which goods or services are sold by the
number of units or amount sold.
- other terms related to revenue include Sales and Service Income. Sales is used
especially when the nature of business is merchandising or retailing, while Service
Income is used to record revenues earned by rendering services.

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Cost

- refers to the purchase price of the product including the total outlay required in
producing it.

Start Up Costs
The start-up capital is the amount of money that is needed to buy facilities and
equipment, to register and license the business and get the necessary certificates.
Working capital includes the costs of raw materials, packaging, staff training,
product promotion, etc. that have to be made before the business begins to generate
income from sales of the product.

Operating Costs

There are two types of operating (or production) costs namely – fixed costs and
variable costs. Those expenses that have to be paid even if no production takes place
are called fixed costs. On the other hand, those expenses that depend on the
amount of production are called variable costs.

Gross Profit (or Gross Loss)

- is the difference between the expected income and the total operating costs over the
first year, including any loan repayments.
- income is therefore calculated as Income = Selling price per unit x Number of units
sold.

How to Forecast Revenue

1. Choose between Judgement Forecasting or Quantitative Forecasting;

2. Start with last year’s revenue and cost statements for a basis of prediction;
3. Consider any changes in personnel, products, pricing, competition and other factors
which could impact your future revenue and cost;
4. Calculated anticipated revenue;
5. Separate individual income sources to get a clear picture of potential ups and downs
from each revenue and cost stream; and
6. Constantly review and update the forecast to reflect changes in your business.

(Source: Wood, Meredith (2020). “Revenue Forecasting Methods 101”, last modified December 22,
2020, https://www.fundera.com/blog/revenue-forecasting-2)

Factors in Forecasting Revenues and Costs of the Business

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. A healthy economy makes good business.
2. The competing businesses or competitors. Observe how your competitors are
doing business. This will give you a benchmark on how much products you need to
stock in order to cope up with customer’s demand. This will also give you a better
estimate as to how much market share is available for you to exploit.
3. The changes happening in the community. Customer’s demographic profile,
lifestyle and buying behaviors give the entrepreneur a better perspective in the
changes in the community. Entrepreneurs must always be keen in adapting these
changes in order to thrive in the marketplace.
4. The internal aspect of the business. Another factor that affects forecasting costs
and revenues is the business itself. Plant capacity often plays a crucial role in
forecasting.

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 Forecast the Revenues of the Business

Example:

Mr. JB recently opened his dream Take Note: Mark up refers to the
business and named it Just Wear Online amount added to the cost to come
Selling Business, which specializes online up with the selling price. The
ready to wear clothes for teens and young formula for getting the mark-up
adults. Based on his initial interview price is as follows:
among online selling businesses, the
Mark Up Price = (Cost x Desired
average number of t-shirts sold everyday
Mark up Percentage)
is 15 and the average pair of fashion
Mark Up for T-shirt = (100.00 x
shorts sold everyday is 10 pieces. From 0.50)
the information gathered, Mr. JB Mark Up for T-shirt = 50.00
projected the revenue of his Just Wear
Online Selling Business. In calculating the selling price,
the formula is as follows:
He gets his supplies from a local
RTW dealer in the city. The cost per piece Selling Price = Cost + Mark up
of t-shirt is 100.00, while a pair of Selling Price = 100.00 + 50.00
fashion shorts costs 250.00 per piece. Selling Price for T-shirt = 150.00
Then, he adds 50 percent mark up to
every piece of RTW sold.

Table 1. shows the Projected Daily Revenue of Just Wear Online Selling Business.
Computations regarding the projected revenue are presented in upper case A, B, C,D and
E.
Table 1. Projected Daily Revenue
Just Wear Online Selling Business

Type of Cost per unit Mark up 50% Selling Price Projected Projected
RTW’s (A) (B) (C) Volume (D) Revenue (E)
Average No. (Daily)
of Items Sold
(Daily)
(A) (B) = (A x 0.50) (C) = (A + B) (D) (E) = (C x D)
T-shirts 100.00 50.00 150.00 15 2, 250.00
Paired Shorts 250.00 125.00 375.00 10 3, 750.00
TOTAL 350.00 175.00 525.00 25 6,000.00

Therefore, the projected monthly and annual revenues of Just Wear Online Selling
Business will be computed as follows:
Table 2. Projected Daily, Monthly, and Annual Revenue
Just Wear Online Selling Business

Projected Annual Revenue (365

Projected Daily Projected Monthly Revenue (30
days in a year)
Revenue days in a month)
6, 000.00 x 30 days = 180, 000.00 6, 000.00.00 x 365 days in a year =
6, 000.00
2, 190, 000.00

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Forecast the Costs to be Incurred of the Business

• Cost of Goods Sold / Cost of Sales

- refers to the amount of
merchandise or goods sold by the
business for a given period of time. In a merchandising business such as Just
This is computed by adding the Wear Online Selling Business, the formula
Beginning Inventory to the Net to compute for Cost of Goods Sold (CGS)
Amount of Purchases to arrive with is as follows:
Cost of Goods Available for Sale Just Wear Online Selling Business
from which the Merchandise Cost of Goods Sold
Inventory, End is subtracted. For the month ended, Jan. 20XX
• Merchandise Inventory, beg.
refers to goods and merchandise at Merchandise Inventory, beginning P XX.XX
Add: Net Cost of Purchases XX.XX
the beginning of the business
Freight-in XX.XX XX.XX
operation or accounting period. Cost of Goods Available for Sale P XX.XX
• Purchases refer to the merchandise Less: Merchandise Inventory, end XX.XX
or goods purchased for resale.
COST OF GOODS SOLD P XX.XX
• Freight-in refers to transportation
cost incurred by the buyer in
transferring the merchandise from
the seller.

Let’s calculate the Cost of Goods Sold of Just Wear Online Selling Business for the month
of January.

• Cost of goods is calculated by simply multiplying the number of items sold every
month (15 t-shirts per day x 30 days in a month = 450 pieces and 10 pairs of shorts
per day x 30 days in a month = 300 pieces) to its corresponding cost per unit (100.00
pesos for every t-shirt and 250.00 for every pair of shorts). The cost of transporting
the goods from the supplier to the seller or Freight-in is then be added to Net Cost of
Purchase.
• There is no Merchandise Inventory, beginning and Merchandise Inventory, ending
because Just Wear items purchased online from the supplier are then sold as soon
as they arrived.

Table 3. shows the Projected Cost of Goods Sold (Monthly) of Just Wear Online Selling
Business. Computations regarding the Projected Cost of Goods Sold (Monthly) are presented
in upper case A, D, F, and J.

Table 3. Projected Cost of Goods Sold (Monthly)

Just Wear Online Selling Business

Projected Volume
(Daily) (D) Projected Cost of
Type of RTW’s Cost per unit (A) Average No. of Purchases (J)
Items Sold (Monthly)
(Monthly) (F)
(A) (F) = (D x 30 days) (J) = (A x F)
T-shirts 100.00 450 45, 000.00
Paired Shorts 250.00 300 75, 000.00
TOTAL 350.00 750 120, 000.00

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Table 4. shows how Freight-in is calculated. It is assumed that an average payment of
transporting the merchandise to the buyer is 270.00 pesos for every 12 items delivered the
buyer. Since, the average order is 750 pieces every month, he pays:
750 pcs. / 12 pcs. = 63
63 x 270.00 = 17, 010.00

Table 4. Assumed Freight (Monthly)

Just Wear Online Selling Business

Projected Volume
Number of (Daily) (D) Assumed Freight
Type of RTW’s Items Sold Average No. of (K)
Daily (A) Purchased Items (January Only)
(Monthly) (F)
(A) (F) = (D x 30 days) (K) = (F/12 x 270.00)
T-shirts 15 450 10, 260.00
Paired Shorts 10 300 6, 750.00
TOTAL 25 750 17, 010.00

Let us now substitute the values from tables 2 and 3. Since, there is no Merchandise
Inventory, beginning and Merchandise Inventory, ending, let’s add Cost of Purchases and
Freight-in to get the Cost of Goods Sold.
Just Wear Online Selling Business
Cost of Goods Sold
For the month ended, Jan. 20XX

Merchandise Inventory, beginning P 0.00

Add: Net Cost of Purchases P 120, 000.00
Freight-in 17, 010.00 137, 010.00
Cost of Goods Available for Sale P 137, 010.00
Less: Merchandise Inventory, end 0.00
COST OF GOODS SOLD P 137, 010.00

Now that the Cost of Goods Sold is calculated already, let us now identify expenses incurred
in the business operation. Operating expenses such as Internet connection, Utilitilies
Expense (Water and Electricity), Rent Expense and Miscellaneous expense are important to
keep the business operating. These expenses are part of the total costs incurred in its day-
to-day operation and are paid every end of the month. The assumed operating expenses
and its amounts are prested below:
Operating Expenses
Add: Internet Connection P 1, 499.00
Utilities Expense 1, 500.00
Rent Expense 5, 000.00
Miscellaneous Expense 1, 000.00
TOTAL OPERATING EXPENSES P 8, 999.00

Now that the total operating expenses are calculated already, we can now solve the Income
Statement to get the Net Profit (Net Loss) of Just Wear Online Selling Business.

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 Just Wear Online Selling Business
Income Statement
For the month ended, Jan. 20XX

Sales P 180, 000.00

Less: Cost of Goods Sold 137, 010.00
Gross Profit P 42, 990.00
Less: Operating Expenses
Internet Connection P 1, 499.00
Utilities Expense 1, 500.00
Rent Expense 5, 000.00
Miscellaneous Expense 1, 000.00 8, 999.00
NET INCOME/PROFIT P 33,991.00

Table 5. shows the projected monthy revenues, costs, and income covering the first year
operation of Just Wear Online Selling Business.

Important Assumptions:

1. For the month of January, the projected revenue -180, 000.00; cost of goods sold -
137, 010.00, operating expenses – 8, 999.00;
2. For the months of February and March, the projected revenue, cost of goods sold,
and operating expenses have an increase of 10% from the previous month;
3. For the months of April to August, it has the same projected revenue, cost of goods
sold and operating expenses;
4. For the months of September to October, it has a loss of 5% from previous revenue
and cost of goods sold and operating expenses have the same amounts from the
previous month;
5. For the month of November, it has an increase of 10% from previous revenue, 5%
increase of cost of goods sold and operating expenses; and
6. For the month of December, it has 15% increase from the previous revenue, 5%
increase of cost of goods sold and operating expenses.

Table 5. Projected Monthly Revenue, Cost, and Income

Just Wear Online Selling Business

Month January February March April May June

Revenue 180,000.00 198,000.00 217,800.00 217,800.00 217,800.00 217,800.00
Cost of
137,010.00 150,711 165,782.00 165,782.00 165,782.00 165,782.00
Goods Sold
Operating
8,999.00 9,899.00 10,889.00 10,889.00 10,889.00 10,889.00
Expenses
Net Income 33,991.00 37,390.00 41,129.00 41,129.00 41,129.00 41,129.00

Month July August September October November December

Revenue 217,800.00 217,800.00 206,910.00 196,565.00 216,222.00 248,655.00
Cost of
165,782.00 165,782.00 165,782.00 165,782.00 174,071.00 182,775.00
Goods Sold
Operating
10,889.00 10,889.00 10,889.00 10,889.00 11,433.00 12,005.00
Expenses
Net Income 41,129.00 41,129.00 30,239.00 19,894.00 30,718.00 53,875.00

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 Let’s Practice

Directions: Forecast the revenue of Jurattan Business and fill in the necessary figures to
complete the table below based on the given scenario.

Mang Juan is operating a buy and sell rattan business. He named his
business, Jurattan Business. He sells rattan tables and chairs in his stall in a
local market. He gets his rattan table for 1,500.00 each and chair for 500.00
each from a local supplier. He then adds 50 percent mark up for the rattan
products. Mang Juan can sell everyday 10 tables and 10 chairs.

Projected Daily Revenue

Name of the Business: _________________________________

Projected
Volume (D) Projected
Type of Cost per Mark up ____% Selling
Average No. Revenue (E)
Products unit (A) (B) Price (C)
of Items (Daily)
Sold (Daily)
(A) (B) = (A x 0.50) (C) = (A+B) (D) (E) = (C x D)
Table 1,500.00 ______________ 2,250.00 ____________ 22,500.00
_______________ _________ ______________ ___________ 10 ____________
TOTAL _________ 3,000.00 20 ____________

Directions: Using the scenario on Activity 1, use the template and fill in the
necessary figures below:

Projected Daily, Monthly, and Annual Revenue

Name of the Business: ________________________________________

Projected Monthly
Projected Daily Projected Annual Revenue (365
Revenue (30 days in a
Revenue days in a year)
month)
_______________ x 30 days = _________________ x 365 days =
30,000.00 ______________________ _______________________

What is the difference between Judgement and Quantitative Forecasting?

Briefly explain your answer.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

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 Let’s Do More

Directions: Forecast the cost of NinBag Business and fill in the necessary figures to
complete the table below based on the given scenario.

Nina is operating a buy and sell bag business. She named her business, NinBag
Business. She sells original bags in her stall in a local market. She gets her bag products
for 250.00 each from a local supplier. She then adds 40 percent mark up for her bag
products. Nina can sell 10 bags everyday.

Projected Cost of Purchases (D)

Projected Monthly and Annual Cost of Goods Sold
(Monthly)
Name of the Business: ______________________________________

Projected Volume
(Daily) (B) Projected Cost of Projected Cost
Type of Cost per unit
Average No. of Purchases (D) of Purchases (E)
Product (A)
Items Sold (Monthly) (Annually)
(Monthly) (C)
(A) (C) = (B x 30 days) (D) = (A x C) (E) = (A x B x 365
days)
___________ ________________ 300 ___________________ 912,500.00
TOTAL ________________ __________________ ___________________ _________________

Directions: Using the following assumptions, calculate and forcast the projected semi-annual
revenue, cost and income of JB Business.

Important Assumptions:

1. For the month of January, JB Business started its operation and has projected revenue of
900, 000.00; cost of goods sold of 636, 000.00, and operating expenses of 15, 500.00;
2. For the month of February, the projected revenue, cost of goods sold, and operating expenses
have an increase of 10% from the previous month;
3. For the months of March to April, it has the same amount of projected revenue, cost of goods
sold and operating expenses from the previous month;
4. For the month of May, it has an increase of 10% from previous revenue, 5% increase of cost
of goods sold and operating expenses; and
5. For the month of June, it has 15% increase from the previous revenue, 5% increase of cost
of goods sold and operating expenses.

Projected Semi-Annual Revenue, Cost, and Income

Name of the Business:______________________________________
Month January February March April May June
Revenue 900,000.00 990,000.00
Cost of Goods
636,000.00 699,600.00 699,600.00
Sold
Operating
15,500.00 17,903.00 18,798.00
Expenses
Net Income 248,500.00

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What is the importance of minimizing the cost of goods sold? Briefly explain your answer.
___________________________________________________________________________________
___________________________________________________________________________________
What is the importance of forecasting revenue and cost of the business? Briefly explain your
answer.
___________________________________________________________________________________
___________________________________________________________________________________

Let’s Sum It Up
Directions: Fill in the blanks with the correct answer. Choices are given inside the
parentheses. Write your answers in the blanks provided.

Entrepreneurs use _________________________ 1.) (forecasting, planning) techniques

to determine events that might affect the operation of the business.
________________________________ 2.) (Judgement Forecasting, Quantitative Forecasting)
uses your own intuition and experience as the business owners set a general pattern of the
income and expenses for the year. ___________________________________ 3.) (Judgement
Forecasting, Quantitative Forecasting) uses actual and past income and expense data
from your own business or other businesses in your industry as a basis for tracking trends
and predicting changes. Thus, entrepreneurs should always present assumptions to
consider in projecting ______________________ 4.) (revenue, purchases), costs and
______________________ 5.) (sales, profit).

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 Let’s Assess
Directions: Read and answer the following questions. Circle the letter of the correct
answer.
1. What do you call a method to predict the future, an estimate or prediction of future
developments in business such as sales, expenditures and profits?
A. Computing C. Planning
B. Forecasting D. Surveying
2. What is the difference between the expected income and the total operating costs
over the first year of business operation?
A. Cost of Goods Sold C. Gross Profit
B. Freight-in D. Net Income
3. Which of the following refers to transportationcost incurred by the buyer in
transferring the merchandise from the seller?
A. Freight-in C. Gross Profit
B. Freight-out D. Net Income
4. Which of the following are needed to calculate Cost of Goods Sold?
I. Freight-in III. Merchandise Inventory, beginning and ending
II. Freight-out IV. Net Cost of Purchases
A. I and IV only C. I, III and IV
B. I, II and III D. I, II and III
5. Which of the following refers to the merchandise or goods purchased for resale?
A. Freight-in C. Purchase Returns and Allowances
B. Purchases D. Sales

For numbers 6 -10.

1. Which Mang
of the Tonio is the
following owner
is NOT theofright
“MT supplier?
Bamboo Business”. He sells sala set made
of bamboo for P 25,000.00
A. Continuous per set. He got his
poor service products
C. Has from
a return a local supplier. Then,
policy
he can seel 2 sala sets every day. The cost of materials in making the sala set is
B. Has a quality product D. Minimum and maximum order
approximately P 9,500.00 per set. The freight-in is P 3,000.00 per sala set and the
total operating expenses is P 15,000.00.
2.
6. How much is the projected sales of MT Bamboo Business per day?
A. P 9,500.00 C. P 25,000.00
B. P 15,000.00 D. P 50,000.00
7. How much is the projected sales of MT Bamboo Business per month?
A. P 750,000.00 C. P 1,500,000.00
B. P 773,500.00 D. P 1,750,000.00
8. How much is the total operating expenses of MT Bamboo Business?
A. P 9,500.00 C. P 15,000.00
B. P 12,500.00 D. P 25,000.00
9. How much is the projected cost of goods sold of MT Bamboo Business per month?
A. P 550,000.00 C. P 570,000.00
B. P 560,000.00 D. P 580,000.00
10. How much is the projected net income of MT Bamboo Business per month?
A. P 735,000.00 C. P 755,000.00
B. P 745,000.00 D. P 765,000.00

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