Forecasting Costs PPT 1

QUARTER 2
ENTREPRENEURSHIP
LESSON 2
FORECASTIN
G THE COST
TO BE
GROUP 4- BRIN
WHAT'S IN
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 incur
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.
WHAT'S NEW
Have you tried recording the amount of money you spend from your daily allowance? You might be
experiencing difficulties in making your allowance meet your daily needs as student. Try to fill in the
information below to come up with a breakdown of your daily allowance.
Were you able to get a positive total? You may have spent your daily allowance wisely and saved sum of
your daily allowance. Did you spend all your allowance and ended up with a zero total? You may have spent
your allowance on expenses essential to your need as a student.
Considering your expenses as a student, a business also has expenses necessary for its upkeep. It would
be best for any business to arrive with a positive total: this would mean profit for the business. Careful
consideration and projection of these factors could mean success for the business.
WHAT IS IT
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:
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
Projected Volume
Projected Costs Purchases
Cost per Unit Average No. of Items Sold
Type of RTWs (Monthly)
(Monthly)
(A) F = (D x 30 days) K = (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. x 250.00

40 x 250.00 = 10,000.00
Table 5
Freight-in paid by Ms. Nista every month
Projected Volume
No. of Items Sold (Daily) Average No. of Items Freight In (January Only)
Type of RTWs Purchased (Monthly)
(A) F = (D x 30 days) J = (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.
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:
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:
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
78,400.00 82,320.00 86,436.00 90,757.80 95,295.69 104,825.26
Sold
Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.75 2,648.69
Total Cost &

80,799.00 84,766.98 88,931.92 93,303.64 97,892.44 107,473.95
Expenses
Month July August September October November December
Cost of Goods
110,066.52 110,066.52 104,563.20 99,335.04 104,301.79 114,731.97
Sold
Expenses 2,701.66 2,755.70 2,810.81 2,867.03 2,924.37 2,982.85
Total Cost &

112,768.19 112,822.22 107,374.01 102,202.06 107,226.16 117,714.82
Expenses
Important Assumption's
Increase 5% from Previous Costs Peak

February-May
Months
Increase 10% from Previous Costs
June Non-peak
Months
Same Costs
July-August
Loss 5% of Previous Costs
September
Loss 5% of Previous Costs
October
Increase 5% from Previous Costs Peak
November Months
The projected monthly costsIncrease 10%
covering the from Previous
first of Costs
operation of Ms. Nista's Fit Mo'to RTW Online Selling
December
Business is presented in Table 6.
THANK YOU

Forecasting Costs PPT 1

Uploaded by

Copyright:

Available Formats

Forecasting Costs PPT 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Forecasting Costs PPT 1

Uploaded by

Copyright:

Available Formats

QUARTER 2

T-Shirts 90.00 300 27,000.00

Jeans 230.00 180 41,400.00

Total 320.00 480 68,400.00

480 pcs. / 12 pcs. x 250.00

(A) F = (D x 30 days) J = (F/12) x 250

T-Shirts 10 300 6,250.00

Jeans 6 180 3,750.00

Total 16 480 10,000.00

Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.75 2,648.69

Total Cost &

Expenses 2,701.66 2,755.70 2,810.81 2,867.03 2,924.37 2,982.85

Total Cost &

Increase 5% from Previous Costs Peak

You might also like