Entrep - Module 5 - Capitalization and Sales Projection

ENTREPRENEURSHIP 1st Trimester SY 2021-2022
Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: STEM 12
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph
MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos
CAPITALIZATION AND SALES PROJECTION

Objectives:
At the end of the chapter, the students shall be able to;

a. Forecast the revenues;
b. Forecast the cost to be incurred;
c. Compute for the profit; and
d. Create the company’s 4 years projected sales.
A. COSTING AND PRICING Costing

Costing
Cost is the material needed in exchange of something. In business, cost is the amount/value of
money to buy something.
Costing is the process of identifying the cost.
Cost Accounting is a systematic process of recording, analyzing and reporting of the cost of a
certain company.
Types of Costing
a. Variable Cost – is a cost of the material used in making the product/services. This cost can
change based on the quantity of product/services produced by a certain business.
Examples are materials needed to make a cake, making a house, and doing massage(like
oil).
Total Variable Cost – The total variable cost changes as you increase your unit.
Example: cost of a pencil = 5 pesos
Quantity Cost of materials Total variable Cost

1 5 pesos 5 pesos
2 5 pesos + 5 pesos 10 pesos
3 5 pesos + 5 pesos + 5 pesos 15 pesos
4 5 pesos + 5 pesos + 5 pesos 20 pesos
+5 pesos
Per unit variable cost – the per unit variable cost does not change as you increase your
unit.
Quantity Cost of material Per Unit Variable Cost
1 5 pesos 5 pesos
2 5 pesos 5 pesos
3 5 pesos 5 pesos
4 5 pesos 5 pesos
b. Fixed Cost – this is also known as overheads/indirect cost. This cost does not depend on the
quantity of the product/services. Examples are rent, insurance, interest expenses, utilities,
salaries and etc.
Total Fixed Cost – the total fixed cost does not change as you increase your unit.
Example: Cost of Rent = 15,000 pesos
Quantity Cost of Rent Total Fixed Cost
Page | 1
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
1 15,000 pesos 15,000 pesos

2 15,000 pesos 15,000 pesos
3 15,000 pesos 15,000 pesos
4 15,000 pesos 15,000 pesos
Per Unit fixed Cost – the per unit fixed cost changes as you increase your unit.
Quantity Cost of Rent Per Unit Fixed Cost

1 15,000 pesos / 1 15,000 pesos
2 15,000 pesos / 2 7,500 pesos
3 15,000 pesos / 3 5,000 pesos
4 15,000 pesos / 4 3 , 750 pesos
Pricing
Price is the amount of material needed to buy something.
Pricing is the process of computing for the price.
In determining our prices, we need to consider these basic factors:
a. Cost of the product

b. Economic power
c. Competition
Common Pricing Strategies

a. Cost – based pricing/cost – plus pricing: this is also known as the mark up pricing. This is the
very basic pricing strategy. The usual mark up value is 40 %.
𝑡𝑜𝑡𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡(1 + 𝑚𝑎𝑟𝑘𝑢𝑝 𝑣𝑎𝑙𝑢𝑒)

𝑡𝑜𝑡𝑎𝑙 𝑝𝑟𝑖𝑐𝑒
𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 =
𝑢𝑛𝑖𝑡 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
b. Market pricing / Competitive Pricing – This pricing is based on the price of your competitors.
c. Value – Base Pricing – This pricing is based on how much your customers believes what you’re
selling worth.
d. Premium Pricing – this is a pricing where you set for the highest price and gradually lowering
the price later.
e. Penetration Pricing – this pricing is the opposite of premium pricing. You set for the lowest
price to enter the competitive market and gradually raising the price later.
Page | 2
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
B. CAPITALIZATION
- It is a measure of a company’s total value. It is not the only measure, but one that financial
investors use to appraise and value a company.
- Economists defined capital as the equipment needed for the production process. It is one
of the two factors of production, the other one is labor.
Example: A car company’s capital consists of the different machinery needed to produce
cars, the buildings or spaces needed to house the machines, warehouse, vehicles such as
the trucks and any other physical entity associated with the production process. In
addition, the company’s offices, office supplies and even pens and pencils are considered
as a company’s capital.
- Capital is only one of the elements of assets in a company. Other include its investments
and anything that the company can convert to cash.
- Market capitalization consists of both the financial and economic sense of the word
"capital," minus anything the business may owe, such as labor costs.
Guidelines for projecting your company’s capitalization
1. Focus on what your company needs, not on what you believe you can raise.
2. Think in terms of your company’s stages of growth: each will have specific capital
requirements.
- You should know how much money you will be needing. It is better to start with less than
your company will need so that you can always adjust your spending plans rather than
starting with a really large expense.
3. Figure out the best source of funding for each stage of development.
- Put in mind that you may have different strategies where in you can have your own capital
for your company. You may have different sources for your capital. It may be in the form
of bank loans or nonbank lenders such as investments, credit card companies or
government loans or it may be from your own savings. But to reduce different conflicts
along the journey of your company, plan carefully your sources of capital and the
different payback schedules.
4. Schedule your activities accordingly.

- You should always plan the development of your company. If you need to expand your
company, you should plan perfectly the flow for its development. If you failed to follow
the dates for the switch in your company, it is probably a warning sign that your
company’s development is being slow or off coursed.
5. Monitor your fund-raising progress and the accuracy of your capital requirement
projections. - You should always plan and check your investments for you not to be in a big
debt. Because, sad truth is that it is very difficult to persuade someone to lend you money or
make different investments at first. But if you planned your investment and cash flow
accurately and properly, in the long run, you will not have problems.
Page | 3
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
C. SALES PROJECTION/PROJECTED INCOME
- It estimates the financial results such as profits and losses that you will see from your business
in a future period of time often presented in the form of an income statement.
Strategies for making projections

1. If you're making projections for an established business, past sales and expenses give you a
guide to the future.
2. If your company is a startup but you have experience in the industry, use that experience to
make your projections.
3. If you don't have experience, hire an accountant who does, or extrapolate from the market
research you did for your startup.
4. If your company is new, it is a good idea to make projections for at least the next three years.
The first year’s projection should include monthly budgeted income statements.
Main Line Items for Sales Projection/Account Revenues
1. Sales Revenue
This is the top of the income statement or basically, you start with your sales revenue. Sales
revenue may be forecasted in different ways. First, it can be modelled from as a simple growth
rate from previous years. Second, it can be modelled as a factor of the gross domestic product
or some other macroeconomic metric. And lastly, it can be modelled as a simple dollar value.
2. Cost of Goods Sold (Gross Revenue)

You now forecast the COGS by subtracting the COGS from the revenue to arrive at the gross
profit. These may be split into raw material, work in progress, finished goods, direct labor costs,
direct material costs, or some other line items, depending on business operations.
3. Operating Expense
Includes selling, general, administrative, depreciation, interest expenses and the like. Simply it
includes the different expenses that you have in your company.
4. Tax Expense
It is found as a percentage of earnings before tax. It is known as the effective tax rate, cash tax
rate or the income tax. We can compute this by using the Annual Income Tax table from the
Train Law (R.A. No. 10963).
Page | 4
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
Example: Make a 4-year projected income statement of Mang Bagoong Product. Complete the
table below.
Given:
Sales at ₱ 75/ bottle Cost of Sales: ₱ 52.50 pesos/bottle
Quantity per month: average of 1500/ month Marketing expenses: ₱ 13, 975/month
Operating expenses: ₱ 15, 083/month
Year 1 - 2020 FORMULA SOLUTION
Sales/bot. 75
Quantity per Month 1500
Cost of Sales 52.5 GIVEN GIVEN
Marketing Expense/mo. 13,975
Operating
Expense/mo. 15,083
Year 1
2020
No percent of increase since this is the
Percent of Increase ----
1st year.
Multiply the sales by the quantity
Sales per per month then multiply by 12. Since
Sales at P 75 per bottle ₱ 1,350,000
bottle X 12 we have 12 months in one year. (75
* 1500) * 12)
Page | 5
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
Multiply the cost of sales by the quantity

Less: Cost of sales at Cost of Sales per month then multiply by 12.
945,000
P52. 50 per bottle X 12 Since there are 12 months in one year.
(52.50 * 1500) * 12)
Simply subtract the cost of sales from
Sales – Cost of
Gross profit 405,000 the sales. Note: LESS means to subtract.
Sales
(1,350,000 - 945,000)
*** Since the percent of increase for Year 2 is 10%, you need to increase everything by 10%.
Page | 6
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
Year 2 - 2021 FORMULA SOLUTION
Year 1
Add 10% to the sales per bottle from
Sales/bot. +
Year 1 which is ₱ 75 by simply adding
Sales/bot. 82.5 (Year 1
the product of 75 and 10% to 75. (75
Sales/bot. *
+ (75 * 0.10))
0.10)
Year 1 Multiply the quantity per month from
Quantity per Month 1650 qty/mo. + year 1 which is 1500 by 10% then add
(Year 1 the product to 1500. ***NOTE: ALWAYS
qty/mo. * FOLLOW THE RULE IN ROUNDING UP
0.10) since this is quantity.
(1500 + (1500 * 0.10))
Year 1
Multiply the cost of sales per bottle
COS/bot +
from year 1 which is 52.50 by 10% then
Cost of Sales 57.75 (Year 1
add the product to 52.50.
COS/bot. *
(52.50 + (52.50 * 0.10))
0.10)
Year 1
Multiply the marketing expense per
ME/mo. +
month from year 1 which is 13,975 by
Marketing Expense/mo. 15372.5 (Year 1
10% then add the product to 13,975.
ME/mo. *
(13,975+ (13,975 * 0.10))
0.10)
Year 1
Multiply the operating expense per
OE/mo. +
Operating month from year 1 which is 15,083 by
16591.3 (Year 1
Expense/mo. 10% then add the product to 15,083.
OE/mo. *
(15,083 + (15,083 * 0.10))
0.10)
Page | 7
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
Year 2
FORMULA SOLUTION
2021
Percent of Increase 10%
Sales at P 75 per bottle 1633500
Less: Cost of sales at

P52. 50 1143450
Gross profit 490050
Less: Marketing THIS IS THE SAME AS THE COMPUTATION IN

Expenses 184470 YEAR 1. YOU WILL JUST USE THE GIVEN
Less: Operating
VALUES ABOVE.
Expenses 199095.6
Net Income Before Tax 106484.4
Less: Income Tax 0
NET INCOME 106484.4
The Final output will be…

Year 1 - 2020 Year 2 - 2021 Year 3 - 2022 Year 4 - 2023
Sales/bot. 75 82.5 99 128.7

Quantity per Month 1500 1650 1980 2574
Cost of Sales 52.5 57.75 69.3 90.09
Marketing Expense/mo. 13975 15372.5 18447 23981.1
Operating
Expense/mo. 15083 16591.3 19909.56 25882.428
Year 1 Year 2 Year 3 Year 4
Percent of Increase ---- 10% 20% 30%
Sales at P 75 per bottle 1350000 1633500 2352240 3975285.6
Less: Cost of sales at

P52. 50 945000 1143450 1646568 2782699.92
Gross profit 405000 490050 705672 1192585.68
Less: Marketing
Expenses 167700 184470 221364 287773.2
Page | 8
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
Less: Operating
Expenses 180996 199095.6 238914.72 310589.136
Net Income Before Tax 56304 106484.4 245393.28 594223.344
Less: Income Tax 0 0 0 61344.6688
NET INCOME 56304 106484.4 245393.28 532878.6752
References:
Edralin,D.M. Entrepreneurship. Quezon City: Vibal Group Inc.
Kawasaki, G. (2004). Art of start: The time-tested, battle-hardened guide for anyone starting anything.
USA: Penguin Group
Skripak, S. J. (2016). Fundamentals of business. USA: Pamplin College of Business and Virginia Tech
Libraries
Page | 9

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ENTREPRENEURSHIP 1st Trimester SY 2021-2022

Governor Pack Road, Baguio City, Philippines 2600

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

CAPITALIZATION AND SALES PROJECTION

At the end of the chapter, the students shall be able to;

A. COSTING AND PRICING Costing

Quantity Cost of materials Total variable Cost

Quantity Cost of Rent Total Fixed Cost

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

1 15,000 pesos 15,000 pesos

Quantity Cost of Rent Per Unit Fixed Cost

In determining our prices, we need to consider these basic factors:

a. Cost of the product

Common Pricing Strategies

𝑡𝑜𝑡𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡(1 + 𝑚𝑎𝑟𝑘𝑢𝑝 𝑣𝑎𝑙𝑢𝑒)

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

Guidelines for projecting your company’s capitalization

4. Schedule your activities accordingly.

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

C. SALES PROJECTION/PROJECTED INCOME

Strategies for making projections

2. Cost of Goods Sold (Gross Revenue)

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

Year 1 - 2020 FORMULA SOLUTION

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

Multiply the cost of sales by the quantity

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

Year 2 - 2021 FORMULA SOLUTION

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

Percent of Increase 10%

Sales at P 75 per bottle 1633500

Less: Cost of sales at

Gross profit 490050

Less: Marketing THIS IS THE SAME AS THE COMPUTATION IN

Net Income Before Tax 106484.4

Less: Income Tax 0

NET INCOME 106484.4

The Final output will be…

Sales/bot. 75 82.5 99 128.7

Year 1 Year 2 Year 3 Year 4

Percent of Increase ---- 10% 20% 30%

Sales at P 75 per bottle 1350000 1633500 2352240 3975285.6

Less: Cost of sales at

Gross profit 405000 490050 705672 1192585.68

MODULE 5 – ENTREP Subject Teacher: Kenny Jones A. Amlos

Net Income Before Tax 56304 106484.4 245393.28 594223.344

Less: Income Tax 0 0 0 61344.6688

NET INCOME 56304 106484.4 245393.28 532878.6752

Edralin,D.M. Entrepreneurship. Quezon City: Vibal Group Inc.

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