Forecast Cost of sales and

Operating Expenses
Hellen Grace Tagacay
12-ABM
2.Forecast Cost of sales and Operating expenses
In determining the cost of sales and operating expenses, variable and
fixed cost should be identified.

Cost of sales are direct costs associated in the generation of sales. One
way of projecting cost of sales is using the cost of sales ratio. Companies
would generally have a consistent historical cost of sale ratio.

Operation expenses are a mix of variable cost and fixed cost. Variable[e.g.
commissions,utilities,and the likes] usually vary with sales. To project
these costs, the percentage of sales method may be used. On the other
hand; fixed cost, [e.g. rent, insurance, salaries, depreciation ,interest
expenses and the likes] remain the same no matter how the volume of
sales has changed.

2
 • Variable operating expenses is 7.5% of sales. Depreciation
expenses is 10% of the gross beginning balance of property,
plant and equipment. As of December 31, 2016, the gross
balance of PPE is 26,000,000. for January 2017, P5 million
new PPE will be acquired. It is the policy of the company
that PPE acquired in the first half of the year will be depciated
for one full year.

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• A, first compute for the cost of sales percentage in 2016 using the following formula;
• cost of sales percentage in 2016= (cost of sales 2016÷ net sales 2016)x 100%
=(41,954,730÷ 52,501,O85)X 100%
=79.91%
B, Then, compute for the project cost of of sales using the formula below.
cost of the sales in 2017 = cost of sales percentage in 2016x projected net sales
2017
=79.91%x57,751,194
=46,148,979
How to compute for the operating expenses?
Variable operating expenses =Projected sales 2017x7.5%
=57,751,194x 0.075
= 4,331,340

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How to compute for the depciation expenses (PPE)?
Depciation expenses (PPE)=26,000,000+5,000,000x10%
=31,000,000x0.075
=3,100,000
How to compute for the total operating expences?
Operating expenses= Variable Operating Expenses+Depreciation Expence (PPE)
= 4,331,340+3,100,000
= 7,431,340

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 How to compute for PPE, Net for 2017 (projected)
PPE net, beginning Wherein :
P12,200,000 • P12,200,000 is the PPE, net on the 2016 SFP
Additions • p5,000,000 is amount of the newly acquired
5,000,000 PPE on January 2017
Less :
(3,100,000)
PPE net, ending
P14,100,000

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