ENTREPRENEURSHIP 12

QUARTER 2 - MODULE 4

11/12
Entrepreneurship
Quarter 2 – Module 4
Costs
 ENTREPRENEURSHIP 12
QUARTER 2 - MODULE 4

Lesson 1: Costs of Materials

Learning Competencies: Forecast the costs to be incurred

At the end of the lesson, you are expected to:
 forecast the cost of material required to manufacture the product
 forecast labor cost amount paid to workers directly involved in the production, and
 forecast manufacturing overhead cost incurred in producing the product.

What is it?
Before preparing the production schedule, the projected sales figure must be finalized. The production
schedule is highly dependent on the sales forecast. The production schedule simply shows the cost of
making or producing a product. It reflects the following information:
a. number of units and the cost of raw materials
b. direct labor cost
c. manufacturing overhead cost
For example, the expected sale in terms of units of JENNY Trading in 2019 is 40, 868. Assume further that
there are three types of raw materials required to produce one unit of finished product indicated as follows:
Material AA 2 units
Material BB 3 units
Material CC 5 units
To manufacture 40,868 finished products, the total requirements are as follows:
Material AA (2 units x 40,868) 81,736 units
Material BB (3 units x 40,868) 122,604 units
Material CC (5 units x 40,868) 204,340 units
To determine the total cost of materials required to manufacture the product, the number of materials
requirement is multiplied by the prevailing price of raw materials.
For example, if material AA is priced at P 1.50 per unit, then the total cost to purchase Material AA will be
P122,604 (81,736 units x P1.50).

What’s more?

Directions: Determine the total cost for Material BB at P2.50 per unit as required to manufacture the 40,868
finished products. Show your solution and use the answer sheet provided. (5 points)
Total Cost
Cost of Material BB 3 units

Lesson 2: Labor Cost

What is it?

Another important element in production schedule is labor cost. It refers to the amount paid to workers
directly involved in making the product.

For example, JENNY Trading needs 25 workers to make 40,868 finished products. Based on past
year’s performance, 3 hours is required to finished one product. Since 40,868 units are expected to be
produced, the total number of direct labor hours will be 122,604 (40,868 x 3 hrs.). In case the labor rate
per hour is P8.00, then the projected labor cost for the 40,868 units will be P980,832 (122,604 x P8).
 ENTREPRENEURSHIP 12
QUARTER 2 - MODULE 4
What’s more?

Directions: Ben Trading Company needs 30 workers to make 50, 585 units to be delivered on December
2020. Based on the company’s previous production, 4 hours is required to finish one product.
Determine the labor cost of Ben’s Trading project on December 2020 if the labor rate is at
P9.00. (5 points)

Lesson 3: Manufacturing Overhead Cost

What is it?

The manufacturing overhead costs refer to costs incurred in producing a product that cannot be
classified as direct materials or direct labor costs. These costs include, among others, the salary paid to the
supervisor, light and water, depreciation of machinery, fuel and gas related to production, and indirect
materials.
For example, the estimated overhead costs of JENNY Trading considering the estimated number of
units to produce is 28,595 are as follows:
Variable cost based on unit produced:
Indirect materials and supplies P6 per unit
Light and water 12 per unit
Other variable cost 18 per unit
Fixed cost
Salary of supervisor P250, 000
Depreciation 420, 000
Taxes 100, 000
Other fixed cost 230, 000
To determine the total manufacturing overhead cost:
Variable cost based on unit produced:
Indirect materials and supplies (28,595 x 6) P 171,570
Light and water (28,595 x 12) 343,140
Other variable cost (28,595 x 18) 514,710
Total variable cost P 1,029,420
Fixed cost
Salary of supervisor P250, 000
Depreciation 420, 000
Taxes 100, 000
Other fixed cost 230, 000
Total fixed manufacturing cost P1,000,000
Total estimated manufacturing overhead cost P2,029,420

What’s more?

Directions: Determine the estimated overhead costs of BEN Trading Company with an estimated number of
units to produce are 50, 585 on December 2020: (10 points)

Variable cost based on unit produced:

Indirect materials and supplies P8 per unit
 ENTREPRENEURSHIP 12
QUARTER 2 - MODULE 4
Light and water 10 per unit
Other variable cost 15 per unit
Fixed cost
Salary of supervisor P300, 000
Depreciation 400, 000
Taxes 150, 000
Other fixed cost 50, 000

Assessment

Directions: Read each item carefully and write the letter of your choice on your answer sheet.
1. This refers to costs incurred in producing a product that cannot be classified as direct materials or direct
labor costs.
a. material cost c. indirect material cost
b. labor cost d. manufacturing overhead cost
2. This refers to the amount paid to workers directly involved in making the product.
a. manufacturing overhead cost c. material cost
b. indirect material cost d. labor cost
3. This cost is for the power supply consumed during the company’s production.
a. light c. fuel
b. water d. gas
4. This cost is for the water supply consumed during the company’s production.
a. gas c. water
b. fuel d. light
5. This cost is for the fuel consumed during the company’s production or any business transaction related
to product production.
a. fuel c. light
b. air d. water
6. Mr. Arnel estimates 20, 567 units to produce before the year ends. How much he would pay for the light
and water as one expenses for the production if it cost P15 per unit?
a. P308,505 c. P306,507
b. P307,506 d. P305,508
7. Ms. Bia assumes to produce 15, 876 units before the deadline. How much she would allocate payment
for the supplies for production if it cost P13 per unit?
a. P205, 388 c. P206, 388
b. P204, 388 d. P207, 388
8. Mr. Skam plans to purchase material BB to complete his 51, 822 units for the December 2020
launching. How much the total cost of material if it is priced at P2.50?
a. P129, 555 c. P127, 555
b. P128, 555 d. P126, 555
9. Ms. Alma May aims to buy material CC for her 24, 678 units project on January 2021 to pursue the
production. How much the total cost of material if it is priced at P3.00?
a. P73, 430 c. P74, 430
b. P74, 043 d. P74, 034
10. Mr. Vergel needs 30 workers to make 45,786 units before December 2020 ends. Based on his
experience, 3 hours is required to finish one unit. How much is the labor cost if the labor rate per hour is
at P2.00?
a. P276, 716 c. P275, 716
b. P274, 716 d. P277, 716

Lourdes National High School

Panglao, Bohol
 ENTREPRENEURSHIP 12
QUARTER 2 - MODULE 4
Entrepreneurship 12
Quarter 2 – Module 4
Costs

Answer Sheet

Name: _________________________________ Score: ____________

Grade & Section: _________________________ Date: _____________

Lesson 1
What’s more?

Lesson 2
What’s more?

Lesson 3
What’s more?

Assessment
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Teachers’ Signature Parents’ Signature Over Printed Name

Answer Key
 ENTREPRENEURSHIP 12
QUARTER 2 - MODULE 4

Lesson 1
What’s more?
(5 points)
= Material BB (40,868 x 3 units) 122,604
= 122,604 x P2.50
= P306, 510
Lesson 2
What’s more?
(5 points)
50,585 x 4 = 203,432
= 203,432 x P9.00
= P1,830,888
Lesson 3
What’s more?
(10 points)
Variable cost based on unit produced:
Indirect materials and supplies (50,585 x 8) P404,680
Light and water (50,585 x 10) 505,850
Other variable cost (50,585 x 15) 758,775
Total variable cost P1,669,305
Fixed cost
Salary of supervisor P300, 000
Depreciation 400, 000
Taxes 150, 000
Other fixed cost 50, 000
Total fixed manufacturing cost P 900,000
Total estimated manufacturing overhead cost P2,569,305

Assessment
1. d
2. d
3. a
4. c
5. a
6. a
7. c
8. a
9. d
10. b

References

Dr. Marife Agustin-Acierto (2017). Entrepreneurship. Room 215 ICP Building, CabildoSt.,
Intramuros Manila: Unlimited Books Library Services and Publishing, Inc.