FORECASTING THE COST TO BE INCURRED

Quarter 4 – Week
Quarter 3-Week 1-23

I. Introduction
You have learned that the revenue generated by selling RTW’s has a corresponding amount
of costs incurred. This cost is 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 (Electricity), Salaries and Wages
and Miscellaneous are essential in the operation of the business; this allows the business to continue
to operate in a given period of time.

II. 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 these 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 by 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 gets 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 Freightin is
then added to Net Cost of Purchases.

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 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. x 250.00
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, and 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 amounts 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

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 Important Assumptions

February
May Increase 5% from Previous Costs Peak Months
June Increase 10% from Previous Costs
July-August Same Costs Non-peak Months
September Loss 5% of Previous Costs
October Loss 5% of Previous Costs
November Increase 5% from Previous Costs Peak
December Increase 10% from Previous Costs Months

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.

III. Engagement
Written Work 1:
Directions: Fill in the correct answer.

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 entreprenuer must clearly identify costs incurred in the business operation.
________________ is the amount of goods or merchandise sold during a period of time which 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.

IV. APPLICATION

Performance Task 1:
Directions: 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 u\mbrella 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.

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 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 are the same every month, fill in the
necessary information in Table 6.

Prepared by:

LEY-AN R. LLANITA-BOO
Teacher II

RIZAMAY A. MINDANAO MAVELLE A. FAMORCAN IRISH M. SOLOMON

Teacher III Teacher I Teacher II

Checked and Verified: Noted by:

LEONIDES V. KUNDANGAN ANGELICA F. OLASO

Assistant Principal II Principal III

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