Entrep MOD 12 Forecasting Revenue and Cost 1

Senior High School
Entrepreneurship
Module 12:
Forecasting Revenue and Cost
AIRs - LM
LU_ Entrepreneurship_Module 12
ENTREPRENEURSHIP
Module 12: Forecasting Revenue and Cost
Second Edition, 2021
Copyright © 2021
La Union Schools Division
Region I
All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.
Development Team of the Module
Author: Janice D. Florendo

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Jimena Veronica T. Nieva
Language Reviewer: Kay Owen L. Boado
Illustrator: Ernesto F. Ramos, Jr.
Design and Layout: Angela Pauline C. Ganuelas & Hasmin R. Omaoeng
Management Team:
Atty. Donato D. Balderas, Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of Entrepreneurship
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II
Printed in the Philippines by: _________________________
Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: launion@deped.gov.ph
Senior High School
Entrepreneurship
Module 12:
Forecasting Revenue and Cost
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.
Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.
Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.
In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.
Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.
If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.
Thank you.
Target
There are four areas (4) of management system that usually comprises an
enterprise or a company that serve as foundation in the achievement of its vision,
goals, mission and objectives. You have learned about the areas of organization and
operation, human resource and marketing in the previous modules or learning
materials. You have gained ideas, skills, and knowledge on how a business should
be organized, how you are going to know your market, and how market will know
you better.
In this learning material, you will be focused on the fourth aspect which is the
financial aspect. The financial aspect is the result of the consolidated effort of the
three aspects: organization and operation, human resource and marketing.
Business forecasting is the process of predicting future developments in

business based on analysis of trends in past and present data.
You will know more as we proceed on unpacking the totality of business

forecasting. You will gain different strategies and tools regarding forecasting which
lead to your realization of your expectations of future results.
After going through this module, you are expected to:
1. forecast the revenues of the business; (CS_EP11/12ENTREP-0h-j-14)

2. forecast the costs to be incurred; and (CS_EP11/12ENTREP-0h-j-15)
3. compute for the Profit and loss.
Subtasks:
a. Define forecasting
b. Differentiate the types of forecasting
c. Use methods of forecasting to predict future revenues in a business
d. Compute for the Profit and loss
1
Jumpstart
Activity 1: Spending Diary
Directions: For one week, keep track of how you spend your allowance. At the end of
the week you may be surprised to see where your money goes. After you fill out this
chart, answer the questions below.
Day Daily Allowance Item Spent Amount Spent
Monday
Tuesday
Wednesday
Thursday
Friday
1. What is your total weekly allowance?

2. How do you classify your expenses in your spending diary?
3. How much did you spend for the whole week?
4. Have your expenses exceeded your budget or allowance? If so, how much is
it? If not, how much money have you set aside for the week?
5. Do you believe that budgeting is something you should learn at a young age?
Why do you think so?
2
Discover
Market trend and past data are significantly valuable in predicting the future
and pathways of an enterprise. The process of forecasting refers to the usage of
historical data as inputs to make informed estimates that are predictive in
determining the direction of future trends.
Business utilize forecasting to determine how to allocate their budget or plan
for anticipated expenses for an upcoming period of time. This basically based on the
projected demand for the goods and services offered.
We are going to focus more on financial forecasting. A Financial forecast is a
management tool that presents estimated information based on past, current, and
projected financial conditions. This will help to identify future revenue and
expenditure trends that may have an immediate or long-term influence. The purpose
of the financial forecast is to assess or evaluate current and fiscal conditions to guide
policy and organized decisions. (https://www.omnisci.com/technical-glossary/business-
forecasting)
The forecast is an integral part of the annual budget. A budget is an

estimation of revenue and expenses over a specified future period of time and is
usually compiled and re-evaluated on a periodic basis. An effective forecast allows
for improved decision-making in maintaining fiscal discipline and delivering essential
community services.
Two type of forecasting namely: Bottom-Up Planning and Top-Down
forecasting.
Bottom-up forecasting is a method of estimating a company’s future
performance by starting with low-level company data and working “up” to revenue.
This methods starts with detailed customer or product information and then
broadens up to revenue. This guide will provide examples of how it works and explain
why it’s commonly used in financial modeling and valuation.
GROSS REVENUE
VOLUMES and PRICES
PRODUCT / SERVICES
https://www.gfoa.org/materials/financial-forecasting-in-the-budget-preparation-process
Figure 1: Bottom-Up Forecasting

Top-Down forecasting method provides a projection of revenue by
multiplying the total addressable market (“TAM”) of a given company by an assumed
market share percentage.
3
The Top-Down Forecasting approach refers to estimating future sales by
applying an implied market share percentage to a total market size estimate. The
top-down forecasting method takes on a “bird’s eye” view of the total market that is
reasonably attainable to project the revenue of a company.
TOP-DOWN FORECASTING
REVENUE= MARKET SIZE (PHP) X Market Share Assumption (%)

https://www.gfoa.org/materials/financial-forecasting-in-the-budget-preparation-process
FORECASTING REVENUE AND EXPENSES OF A BUSINESS

Revenue is at the heart of all business performance and everything centers on
the sale. Revenue is the money generated from normal business operations,
calculated as the average sales price times the number of units sold. It is the top line
(or gross income) figure from which costs are subtracted to determine net income.
In accounting, revenue can be a product-based revenue or service-based

revenue dependent on the type of business. Gross revenue concerns all income from
sale, with no consideration for any expenditures from any source.
Product-based formula: Revenue= Number of Units Sold x Average Price
Service-based formula: Revenue= Number of Customers x Average Price
An expense is the money spent, or costs incurred, by a business in their effort

to generate revenues. Basically, accounts expenses represent the cost of doing
business; they are the sum of all the activities that hopefully generate a profit. Cost
are often taken similarly with expense, however this two are different from each
other. Cost is the money measure that has been given up in order to buy an asset,
while expense is a cost that has been expired or taken up by activities that help
generate revenue. Hence, all expenses are costs, but not all costs are expenses.
(https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounts-expenses/)
An expense can be classified into either fixed or variable cost.
 Variable costs are expenses that vary in proportion to the volume of goods
or services that a business produces.
 Fixed cost is a cost that does not change with an increase or decrease in the
amount of goods or services produced or sold. Below are other category of
expenses:
1. Cost of Goods Sold (COGS) – the cost of acquiring raw materials and turning
them into finished products. It doesn’t include selling and administrative cost
incurred but purely a production expense. For a manufacturing firm COGS includes
direct labor, direct materials, and manufacturing overhead. For Service Company, it
is called cost of services rather than COGS and for merchandising concern, it is called
cost of sale.
4
2. Operating Expenses (Selling and Administrative) – expenses which are related
to selling goods and services such as salaries, advertising, and shop rent among
others. General and administrative expenses are also operating expenses incurred
while running the core line of the business it includes executive salaries, R&D, travel
and training and the likes.
A revenue and expense forecast is a prediction or estimation for the next

period on how much money your enterprise is likely to bring in and spend to generate
profit. This allow you how much money will be spend, and what will be your margins
afterwards.
Revenue and Expense Forecasting Methods
There are four main types of forecasting methods that financial analysts used
to predict future revenues in a business. While there are a wide range of frequently
used quantitative budget forecasting tools, we focus on the top two methods or tools:
1) straight-line, and 2) moving average.
1. Straight-line Method
The straight-line method is one of the simplest and easy-to-follow forecasting

methods. It uses historical figures and trends to predict revenue and expense
growth.
Illustrative example on how straight-line forecasting is done in a retail
business. Let assume a constant growth rate of 5% for the three years.
Historical Data Forecast
2019 2020 2021 2022 2023
Sales Growth 5% 5% 5% 5% 5%
Revenue 80,000 84,000 88,200 92,610 97,240.5
Revenue= Previous year x (1+sales growth)
**2021 Revenue= (84000x5%)
= 88200
2. Moving Average
Moving averages are a smoothing technique that looks at the pattern of a set
of data to establish an estimate of future values. The 3-month and 5-month moving
average are the most common types.
*To perform a moving average forecast, the revenue data should be placed in the
vertical column. Create two columns, 3-month moving averages and 5-month
moving averages.
Month Revenue 3- Months-MA 5-Months-MA

January 5,000
February 4,000
March 5,000 4,666.67
April 6,000
May 4,000 4,800
June 5,000
5
*The 3-month average is calculated by taking the average of the current month and
the past two months. The first forecast begin with March with the amount of 5,000.
The formula used is getting the total of the first 3 month. So for the 3 months moving
average (January 5,000, February 4,000, and March 5,000) then divided by 3. The
answer will be 4,666.67. For the 5 months moving average just follow the step for
the 3-month moving average formula.
COMPUTATION OF PROFIT AND LOSS
Profit means success for a business. Profit describes the financial benefit
realized when revenue generated from a business activity exceeds the expenses, cost,
and taxes. Any profit earned funnel back to business owners, who choose to either
pocket the money or reinvest the same for a greater income. A net loss is when total
expenses (including taxes, fees, interest, and depreciation) exceed the income or
revenue produced for a given period of time. Financial analyst use profit and loss as
measure of a business’s worth, helping investors to make appropriate decisions. The
simplest way to compute for profit is represented on the formula below:
The formula to calculate profit is: Total Revenue - Total Expenses = Profit
In here, simple mathematics will do in determining the profit of a

business. Profit is determined by subtracting direct and indirect costs from all
sales earned. Direct costs can include raw materials, labor, and factory
overheads. Illustrative example in using the basic formula.
Jake wants to find out how much money they’ve made in their dog walking business.
They need to know their total revenue and total expenses to calculate their profit.
Total revenue: Php10, 000

Total expenses: Php1, 500
Jake’s total expenses are calculated by adding their direct and indirect costs, as
follows:
Direct costs, such as dog treats: Php1, 000

Indirect costs, like posters and flyers: Php500
Total expenses: Php1, 000 of direct costs + Php 500 indirect costs = Php
1,500
Revenue Php 10,000.00

Less: Expenses 1,500.00
Profit 8,500.00
6
Below is a pro-forma in computing profit and loss in a merchandising concern
business.
Sales (Quantity sold x Selling Price) Php xx

Less: Cost of Sale (xx)
Gross profit xx
Less: Operating Expenses (xx)
Operating Income xx
Less: Other Expenses (xx)
Net Income xx
Illustrative example on Revenue and Expense Forecasting using the Bottom-

Up Approach to calculate the revenue, expenses, and the profit.
Jhasse Construction Supply is a hollow blocks producing company. His

financial analyst is trying to forecast the revenue of the firm for the next accounting
period. The following data are available for his reference below:
Particulars Previous Year 2021 Forecast for Next Year (2022)
Quantity Sold 100,000 20%
Interest Expenditure 400,000 400,000
Fixed Cost 200,000 200,000
Operating Expenses 1,000,000 10% increase
Variable Cost Php 10 Php 10
Selling Price per Unit Php 30 20%
1. Compute for the selling price, sales in unit, and sales in peso for the year
2022.
Previous Year Percentage Change in Next Year (2022)
2021 Change Quantity/ Forecast
Price
Quantity Sold 100,000 20% 20,000 120,000 *
Selling Price Php 30 20% Php 6 Php 36 **
Forecasted Sales in Peso for 2022 Php 4,320,000***
*Quantity sold 2021+change in quantity (100,000+20,000)
** New Selling Price =Selling price 2021+change in price ( Php 30+ Php 6)
*** Sales in Peso for 2022= Quantity sold for 2022+ Selling price 2022 (120,000x Php 36)
2. Compute for the Cost of Goods Sold for the year 2021 and 2022. (Product
produce and sold is the same)
2021 2022
Variable Cost
(100,000 *10) 1,000,000
(120,000 *10) 1,200,000
Fixed Cost 200,000 200,000
Cost of Goods Sold 1,200,000 1,400,000
7
3. Compute for the forecasted profit for the year 2022
Sales (120,000 *36) Php 4,320,000.00

Cost of Sale 1,400,000.00
Gross Profit 2,920,000.00
Less Operating Expenses
(1,000,000 *110%) 1,100,000.00
Operating Income 1,820,000.00
Less: Interest Expenditure 400,000.00
Net Income-Forecasted Php 1,420,00.00
8
Explore
Enhancement Activity 1: Performance Case Study
Directions: Read and analyze the scenario and answer what is being asked. Use
separate paper for your answer.
Floredelz Knit and Croc is a manufacturing business which produces knitted

products in Naguilian, La Union. In 2020 operation, the revenue generated by the
company amounting to Php 1,000,000.00 represent sales on different items such as
jacket, cardigans, scarves, bonnets, and others. The cost of goods sold is 40% based
on sale. The operating expenses is amounting to 30% of the gross profit and interest
expenditure for the year is 50,000.00. Compute for the net income using the pro-
forma table below.
Sales Php 1,000,000.00
Less: Cost of Goods Sold
Gross Profit Php
Less: Operating Expenses
Operating Income Php
Less: Interest Expenditures 50,000.00
Net Profit/ (Loss) Php
Rubrics for Scoring:

Criteria 10 Points2 8 Points 7 Points
Selects and applies a Selects and applies Selects and applies a Selects and applies a
strategy to solve an efficient strategy strategy to solve the strategy to solve
problems accurately to solve problems problem problems accurately
accurately an can with teacher or peer
explain the problem prompting.
solving process
Explains and Explain and justifies Explain and justifies Explain and justifies
Justifies solutions solution using solution solution with teacher
multiple problem or guardian
solving strategy
Identifies and Identifies and Identifies and Identifies and or/
or/uses pattern in or/uses number or/uses patterns in uses number
data to solve pattern in data to data to solve patterns in data to
problems solve problem and problem. solve problems with
can explain the teacher or
process used to solve guardians.
the problem
http://www.ballard.k12.ia.us/wp-content/uploads
9
Deepen
Enhancement Activity 2: Performance and forecasting Case Study
Directions: Carefully read, understand, and analyzed the scenario below. Kindly
answer what is being asked and use separate sheet of paper for your answer.
(Continuation of Explore section)
From the explore enhancement activity 1. The following additional data were
given for the 2021 operation. Sales are expected to increase by 30%, cost of goods
sold remained to be 40% of sales, operating expenses increased by 80,000, and
interest expenditure remained the same.
Requirements:
1. Compute for the forecasted sales revenue for the year 2021.
2. Compute for the Cost of Goods Sold for the year 2021.
3. What is the total operating expenses for the year 2021?
4. Compute for the forecasted profit for the year 2021 using the pro-forma table
in the explore section.
Rubrics for Scoring:

Criteria 10 Points 8 Points 7 Points
Selects and applies Selects and applies Selects and applies Selects and applies
a strategy to solve an efficient a strategy to solve a strategy to solve
problems strategy to solve the problem problems
accurately problems accurately with
accurately an can teacher or peer
explain the prompting.
problem solving
process
Explains and Explain and Explain and Explain and
Justifies solutions justifies solution justifies solution justifies solution
using multiple with teacher or
problem solving guardian
strategy
Identifies and Identifies and Identifies and Identifies and or/
or/uses pattern in or/uses number or/uses patterns uses number
data to solve pattern in data to in data to solve patterns in data to
problems solve problem and problem. solve problems
can explain the with teacher or
process used to guardians.
solve the problem
http://www.ballard.k12.ia.us/wp-content/upload
10
Gauge
Part I: Multiple Choice

Directions: Read carefully the questions and choose the best answer. Write your
answer in a separate sheet of paper.
1. What do you call the process of using historical data as inputs to make
informed estimates that are predictive in determining the direction of future
trends?
A. Budgeting B. Forecasting
C. Planning D. Organizing
2. It is an estimation of revenue and expenses over a future period of time and
usually monitored and evaluated on a periodic basis is called ____________.
A. Budget B. Forecast
C. Plan D. All of the choices
3. What do you call the money generated from the normal course of
business?
A. Income B. Money
C. Profit D. Revenue
4. Cost incurred by the business in their effort to generate revenue is called
____________.
A. Cost B. Expenses
C. Money D. Revenue
5. What do you call a revenue which derived from rendering service as a
means of doing business?
A. Operating Revenue B. Sales Revenue
C. Service Revenue D. Gross Revenue
6. It is a financial benefits realized when revenue exceeded expense.
A. Cost B. Deficit
B. Loss D. Profit
7. What do you call the easiest and simplest way of forecasting revenues and
expenses?
A. Linear Regression B. Moving average
C. Straight line D. All of the choices
8. It is the method of estimating a company’s future performance by starting with
low-level company data and working “up” to revenue is called ______________.
A. Bottom-up forecasting B. Top-down forecasting
B. Moving Average D. Straight line
9. Which of the following formula represent the computation of Profit?
A. Revenue – Cost = Profit B. Income – Cost = Profit
C. Total Revenue – Total Expenses = Profit D. Income – Expenses = Profit
10. What do you call a cost that does not change regardless with the decrease
or decrease of goods and services produced or sold?
A. Fixed cost B. Operating Expenses
C. Variable cost D. Other expenses
11
For items 11-15
Jessa and Jessie, owner of J and J Bicycle Shop in La Union. The company
was established three (3) years ago and the operation of the business is going
smoothly. Last year 2020, the company recorded a sales of their product amounting
to 800,000.00 pesos and recorded cost of sale 35% of the generated sales revenue.
The company forecasted their 2021 sales based on last year 2020 data. The company
projected a 25% increase on 2021 sales and cost of sales remained the same. The
operating expenses for the next year 2021 will be 200,000.00 and other expenses
amounting to 25,000.00.
11. What is the cost of sale for the year 2020?

A. 250,000.00 B. 280,000.00
C. 520,000.00 D. 550,000.00
12. What is the gross profit for the year 2020?

A. 250,000.00 B. 280,000.00
C. 520,000.00 D. 550,000.00
13. What is the projected sale for 2021?

A. 200,000.00 B. 280,000.00
C. 600,000.00 D. 1,000,000.00
14. What is the projected operating income for 2021?

A. 250,000.00 B. 350,000.00
C. 450,000.00 D. 550,000.00
15. What is the projected profit for 2021?

A. 225,000.00 B. 245,000.00
C. 425,000.00 D. 450,000.00
12
13
Explore
Sales Php 1,000,000.00
Less: Cost of Goods Sold 400,000.00
Gross Profit Php 600,000.00
Less: Operating Expenses 180,000.00
Operating Income Php 420,000.00
Net Profit/ (Loss) Php 370,000.00
Deepen
1. 1,300,000.00
2. 520,000.00
3. 260,000.00
4.
Sales Php 1,300,000.00
Less: Cost of Goods Sold 520,000.00
Gross Profit Php 780,000.00
Less: Operating Expenses 260,000.00
Operating Income Php 520,000.00
Net Profit/ (Loss) Php 470,000.00
GAUGE:
1. B 6. D 11. B
2. A 7. C 12. C
3. D 8. A 13. D
4. B 9. C 14. C
5. C 10. A 15. C
Answer Key
References
Printed Materials:
Morato ,Eduardo A. Jr. (2016). Entrepreneurship (pp8-37 & 77-87). Manila,

Philippines: Rex Bookstore, Inc.
Curriculum Guide SHS Applied Track-Entrepreneurship

DepEd (2016). K to 12 Curriculum Guide. Entrepreneurship
Website:
https://www.investopedia.com/ask/answers/difference-between-financial-
forecasting-and-financial-modeling/
https://www.gfoa.org/materials/financial-forecasting-in-the-budget-preparation-
process
https://www.omnisci.com/technical-glossary/business-forecasting
https://board.budgetbakers.com/blog/the-best-revenue-forecasting-methods-for-
your-business/
https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounts
-expenses/
14
For inquiries or feedback, please write or call:
Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph
15

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Senior High School

Development Team of the Module

Author: Janice D. Florendo

Atty. Donato D. Balderas, Jr.

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Pre-tests are provided to measure your prior knowledge on lessons in

If you have any questions in using this SLM or any difficulty in

Business forecasting is the process of predicting future developments in

You will know more as we proceed on unpacking the totality of business

After going through this module, you are expected to:

1. forecast the revenues of the business; (CS_EP11/12ENTREP-0h-j-14)

Activity 1: Spending Diary

Day Daily Allowance Item Spent Amount Spent

1. What is your total weekly allowance?

The forecast is an integral part of the annual budget. A budget is an

VOLUMES and PRICES

Figure 1: Bottom-Up Forecasting

REVENUE= MARKET SIZE (PHP) X Market Share Assumption (%)

FORECASTING REVENUE AND EXPENSES OF A BUSINESS

In accounting, revenue can be a product-based revenue or service-based

Product-based formula: Revenue= Number of Units Sold x Average Price

Service-based formula: Revenue= Number of Customers x Average Price

An expense is the money spent, or costs incurred, by a business in their effort

An expense can be classified into either fixed or variable cost.

A revenue and expense forecast is a prediction or estimation for the next

Revenue and Expense Forecasting Methods

The straight-line method is one of the simplest and easy-to-follow forecasting

Month Revenue 3- Months-MA 5-Months-MA

COMPUTATION OF PROFIT AND LOSS

In here, simple mathematics will do in determining the profit of a

Total revenue: Php10, 000

Direct costs, such as dog treats: Php1, 000

Revenue Php 10,000.00

Sales (Quantity sold x Selling Price) Php xx

Illustrative example on Revenue and Expense Forecasting using the Bottom-

Jhasse Construction Supply is a hollow blocks producing company. His

Particulars Previous Year 2021 Forecast for Next Year (2022)

Quantity Sold 100,000 20%

Interest Expenditure 400,000 400,000

Fixed Cost 200,000 200,000

Operating Expenses 1,000,000 10% increase

Variable Cost Php 10 Php 10

Selling Price per Unit Php 30 20%

Sales (120,000 *36) Php 4,320,000.00

Enhancement Activity 1: Performance Case Study

Floredelz Knit and Croc is a manufacturing business which produces knitted

Rubrics for Scoring:

Enhancement Activity 2: Performance and forecasting Case Study

Rubrics for Scoring:

Part I: Multiple Choice

11. What is the cost of sale for the year 2020?

12. What is the gross profit for the year 2020?

13. What is the projected sale for 2021?

14. What is the projected operating income for 2021?

15. What is the projected profit for 2021?

Morato ,Eduardo A. Jr. (2016). Entrepreneurship (pp8-37 & 77-87). Manila,

Curriculum Guide SHS Applied Track-Entrepreneurship

Department of Education – SDO La Union

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