REVENUE

AND
CO ST S F O R E CA S T
Learning Competency
1. Forecast the revenues of the
business
2. Forecast the costs to be incurred
Prepared by: 3. Compute for profits
RONEL O. ABULOG Code: TLE_ICTAN11/12EM-Ia-2
 REVENUE
AND
CO ST S F O R E CA S T
Objectives:
After the discussion, the learners will be able to:
1. Know the importance of revenue and
forecasting into business and
2. Understand on how to make a basic
computation of revenue and costs.
RECALL:
What is the Selling Price of
the product shown?

₱8.00
What is the Selling Price of
the product shown?

₱22.00
What is the Selling Price of
the product shown?

₱14.00
F OR E CA S T I N G
SOURCE(S) OF INCOME TOTAL MONTHLY INCOME:
PER MONTH:
1.
2.
3.
(ADD MORE IF NEEDED)

EXPENSES (BREAK IT DOWN TOTAL MONTHLY EXPENSES:

BELOW):
1.
2.
3.
(ADD MORE IF NEEDED)
REVENUE FORECAST
There are diversified ways on how to forecast revenues, usually those
that use statistical data and meta data. In a start-up like the one you are
anticipating, forecast is more of an art than science. To forecast your revenue
you need to have basic understanding of the following terminologies:

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.
By understanding the above terms, we make basic computations of the following:
1. 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%
PRODUCT COST PRICE
A ₱35
B ₱28
C ₱15
D ₱10

You can compute for the individual selling price of each product above by following the formula below:

SP = CP x (1+MU)
Denotation: SP = Selling Price CP = Cost Price MU= Mark-up (*Convert to decimal)
 By applying the formula above, selling price below for all products are obtained:

Illustrated below is the computation for PRODUCT A, same computation applies for
other products, you try it yourself:

PRODUCT A: SP = ₱ 35 x (1+0.30)
= ₱ 45.50

PRODUCT COST PRICE SELLING PRICE

A ₱35 ₱45.50
B ₱28
C ₱15
D ₱10
 By applying the formula above, selling price below for all products are obtained:

Illustrated below is the computation for PRODUCT A, same computation applies for
other products, you try it yourself:

PRODUCT A: SP = ₱ 35 x (1+0.30)
= ₱ 45.50
PRODUCT COST PRICE SELLING PRICE
A ₱35 ₱45.50
B ₱28 ₱36.40
C ₱15 ₱19.50
D ₱10 ₱13.00
 TRY IT !!!
Perform the tasks below about forecasting of Revenue and Expenses.
Complete the table below by computing the Selling Price of the following.
YOHANN’S RICE TRADING
RICE COST PRICE/ 25 kg. SELLING PRICE
Sack (Mark-Up 40%)
DENORADO ₱800

JASMINE ₱750

ANGELICA ₱700

BROWN RICE ₱600

 TRY IT !!!
Perform the tasks below about forecasting of Revenue and Expenses.
Complete the table below by computing the Selling Price of the following.
YOHANN’S RICE TRADING
RICE COST PRICE/ 25 kg. SELLING PRICE
Sack (Mark-Up 40%)
DENORADO ₱800 ₱1120

JASMINE ₱750 ₱1050

ANGELICA ₱700 ₱980

BROWN RICE ₱600 ₱840

AC T I V I T Y N O
20 I te m ’s
 RUBRICS

All items are correct with solution and within

6 minutes on time.
5 items are correct with solution and within 7
minutes on time.
4 items are correct with solution within 8 minutes on time

3 items are correct with solution and within 9 minutes on

time.

All items are wrong with solution and within 10 minutes on time.
 Activity No. 1
Perform the tasks below about forecasting of Revenue and Expenses.
Complete the table below by computing the Selling Price of the following.
DURKHEIM’S RICE TRADING
RICE COST PRICE/ 25 kg. SELLING PRICE
Sack (Mark-Up 25%)
DENORADO ₱1000

JASMINE ₱900

ANGELICA ₱850

BROWN RICE ₱800

 Activity No. 1
Perform the tasks below about forecasting of Revenue and Expenses.
Complete the table below by computing the Selling Price of the following.
DURKHEIM’S RICE TRADING
RICE COST PRICE/ 25 kg. SELLING PRICE
Sack (Mark-Up 25%)
DENORADO ₱1000 ₱1250

JASMINE ₱900 ₱1125

ANGELICA ₱850 ₱1062.5

BROWN RICE ₱800 ₱1000

QUIZ T I M E
MULTIPLE CHOICE
Choose the best answer from the choices below. Write Capital letter only and all
erasures are wrong.

1. It is the result when revenue equals expenses.

A. Profit B. Breakeven
C. Losses D. Revenue
2. It refers to earnings when a product is sold or a service is rendered.
A. Income B. Sales
C. Expense D. Costs
3. Result when Income is less than the expenses.
A. Profit B. Income
C. Loss D. Expense
4. Which of the following is the best way to define an income statement?
A. It is a statement of income that breaks down the list of income of a firm
B. It is a statement of expense that shows the different expenses incurred for the
period with corresponding amount.
C. It is simply an income and expense summary
D. It is a basic financial statement that shows the performance of business in
terms of profits for a period

5. Which of the following will be the gross profit and net income of Herodotus
Catering if their Total Income for the Month of August is P76,420.00 and its cost
of goods sold is 43% of total income and total expenses P15,980?
A. P43,559.40; P47,795.40
B. P53,559.40; P27,579.40
C. P43,559.40; P27,579.40
D. None of the above.
TRUE OR FALSE.
Write T if statement is correct and F if statement is false.

____6. Cost and expense are the same.

____7. Expense is always less than revenue.
____8. Profit result if expense is smaller than
revenue.
____9. Profit and Loss statement is different from
Income statement.
____10. Breakeven is a result when there is no loss
and no profit.
 Assignment
Answer the following questions:

1. Why is it important to prepare Forecast of

Income and Expense?

2. What do you think are the ways to maximize

the profit of a firm?
T H AN K Y O U
For a Manufacturing Business:

You have to note that manufacturing is different from merchandising which

simply just buys and sells the products, the former on the other hand, creates
or assembles the product from raw materials to finished products. 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 such as TPC (TOTAL PRODUCTION
COST), DC (DIRECT COSTS), DM (DIRECT MATERIALS), DL(DIRECT
LABOR), OHC (OVERHEAD COST), PUC (Per Unit Cost) and TQP(Total
Quantity Produced. Consider basic formulae below:

TPC = DC + OHC
DC = DM+DL
PUC = TPC/TQP
To further understand them, we may defined and give examples of them. Direct materials
can be explained as those materials that are directly attributable or can be seen on the
product, for example in a barbecue that you buy, its direct materials are the meat, stick,
and its direct labor is the person who makes it and the overhead costs pertains to those
costs that may not be directly seen on the products but are contributors to the cost of the
product such for a barbecue, you need a charcoal, oil, spices and condiments.

Using the example above for barbecue, let us try computing its PUC given
the following data.

DIRECT MATERIAL PHP 1,000.00

DIRECT LABOR PHP 250.00
OVERHEAD COSTS PHP 500.00
QUANTITY PRODUCED 200 STICKS
 DC = P1,000 + P250 = P1,250
TPC = P1,250 + P500 = P1,750
PUC = P1,750 / 200 sticks = P8.75 per stick of Barbecue

Since we have already computed the per unit cost of our product we may
now proceed to computing the SELLING PRICE, same formula illustrated
in merchandising can be used, suppose that we want 38% mark-up for our
barbecue, how much are we going to sell it per stick?
SP = P8.75 x (1+0.38)
= P12.08
2. Computing the Sales. Now that we have tried computing the selling price
above, we may now proceed to computing the 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
 Now let us try computing the sales for the products illustrated
above from merchandising and manufacturing. See below data
on the quantity sold for the products below

PRODUCT COST SELLING QUANTITY SALES

PRICE PRICE
A 35 45.50 300 PHP 13,650.00

B 28 36.40 400

C 15 19.50 350

D 10 13.00 600

TOTAL
 Now let us try computing the sales for the products illustrated
above from merchandising and manufacturing. See below data
on the quantity sold for the products below

PRODUCT COST SELLING QUANTITY SALES

PRICE PRICE
A 35 45.50 300 PHP 13,650.00

B 28 36.40 400 PHP 14,560.00

C 15 19.50 350 PHP 6,825.00

D 10 13.00 600 PHP 7,800.00

TOTAL 42,835.00
 Suppose that the entire barbecue sticks were sold out, how much would be
the sales? Sales = P12.8 x 200 sticks
= P2,416.00

From our illustration we were able to compute REVENUE from SALES,

note that there are other types of REVENUE or INCOME which could also
be from rendering a SERVICE and other types of revenues such as those
incidental and donations, so we say that below are the general types of
revenue or income.

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. 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. Below are the common expenses that a firm may incur:
-Cost of Sales/Cost of Goods Now that we have established the common
Sold
the cost of the product sold expenses, we can now proceed to computing
or manufactured the profits. Profit is simply the excess of Total
-Operating Income less Total Expenses. If income is
Expenses/Administrative and
Advertising greater than Expenses the firm would have
-expenses incurred in a process otherwise, losses shall be incurred. If
normal business operation income is equal to expenses, it results to
-Supplies Expense
-Utilities Expense what we call Breakeven. See the illustration
-Rent Expense below.
-Maintenance and Repairs
-Depreciation PROFIT INCOME>EXPENSES
-Salaries and Wages
-Advertising Others: LOSS INCOME<EXPENSES
- interest
- Tax BREAKEVEN INCOME=EXPENSES
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.
Above is an example of Income Statement which is a basic financial statement
that shows the profitability of a firm for a certain period of time. Note the Cost
of Goods Sold was computed by multiplying the Cost Price to the Quantity
Sold.
PRODUCT QUANTITY SOLD COST COGS
PRICE
A 300 35 PHP 10,500.00

B 400 28

C 350 15

D 600 10

TOTAL PHP 32,950.00

Above is an example of Income Statement which is a basic financial statement
that shows the profitability of a firm for a certain period of time. Note the Cost
of Goods Sold was computed by multiplying the Cost Price to the Quantity
Sold.
PRODUCT QUANTITY SOLD COST COGS
PRICE
A 300 35 PHP 10,500.00

B 400 28 PHP 11,200.00

C 350 15 PHP 5,250.00

D 600 10 PHP 6,000.00

TOTAL PHP 32,950.00