SHS

Entrepreneurship
Quarter 2: Module 6

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Entrepreneurship
Grade 11/12: Quarter 2: Module 6
First Edition, 2020

Copyright © 2020
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: Mira Joy L. Delos Santos, T-I

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

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 ABM

Michael Jason D. Morales, PDO II

Claire P. Toluyen, Librarian II

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Entrepreneurship
Quarter 2: Module 6

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 Target

As you dig deeper in our subject, you discovered and learned

many things about handling your business well.

In starting a business, it is the right practice to come up with a business

model before writing a business plan, because you need to focus first on the basic
ideas and processes of how you will be earning your profit.

In this module, you will be able to learn what is a Business Model, the
development and emergence and its potential flows, it will help to guide you realize
the revenues and profits of your chosen business.

This module is divided into two lessons:

Lesson 1 – Develop the Business Model

Lesson 2 – Forecasting the revenues of the business and Forecasting
the costs to be incurred.

After going through this module, you are expected to:

1. Develop the business model. (CS_EP11/12ENTREP-0h-j-13)

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

3. Forecast the costs to be incurred. (CS_EP11/12ENTREP-0h-j-15)

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 LESSON

1 Develop a Business Model

Jumpstart

Activity 1
Let me ask you some straightforward questions, answer it directly.

1. Do you know what is a Business Model Canvass or BMC?

__________________________________________________________________________________
__________________________________________________________________________________
2. Do you have any idea who originally developed this methodology?
__________________________________________________________________________
3. Can you identify a framework used for planning, developing and testing the
Business Model(s) of an organization?
_________________________________________________________________________________

4. Do you know how to create a Business Model?

5. Let us try to apply one of the Nine Building Block or Components of the Business
Model which is the Customer-Segments. Segmenting your customers based on
similarities such as geographical area, gender, age, behaviors, interests, etc. gives
you the opportunity to better serve their needs, specifically by customizing the
solution you are providing them.

After a thorough analysis of your customer segments, you can determine

who you should serve and ignore. Then create customer personas for each of the
selected customer segments. Ask one of your classmate through messenger about
his/her information

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 Discover

Most of the Filipino Business Entrepreneurs lack a structured way of

thinking about the complex, instead they prefer a simple, powerful approach - one
in tune with the modern workspaces and their personal needs in which leads to
failure. For this matter, they need to be able to adapt in a changing world, upgrade
and think of a business model to reinvert their businesses.

What is A Business Model?

Used to Make Something

A plan or A Used to described

diagram Business something
Model

In The New, New Thing, Michael Lewis refers to the phrase business model as
“a term of art.” And like art itself, it’s one of those things many people feel they can
recognize when they see it (especially a particularly clever or terrible one) but can’t quite
define. - Andrea Ovans, Harvard Business Review

The Business Model is a framework for how a company will create value.
It will extract the potential of a business down to its essence. It answers fundamental
questions about the problem you are going to solve, how you will solve it, and the
growth opportunity within a given market. It serves an ongoing extension of
feasibility analysis; it focuses attention on how all the elements of a business fit
together and constitute a working whole. It will describe why the network of
participants needed to make a business idea viable are willing to work together;
articulates a company’s core logic to all stakeholders.

It describes the reasons of how an organization creates, delivers, and

captures value in economic, social, cultural or other contexts. The development of
business model construction and variation is also called business model innovation
and forms a part of business plan. It is a company's plan for how it will make
revenues and make a profit. It describes what products or services the business plans
to manufacture and market, and how it plans to do so, as well as what expenses it
will incur.

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 The Businessplanshop.com

There are important phases in developing your business model, namely;

Identifying the specific audience; establishing business process; recording a business
resources; developing strong value proposition; determining key business partners;
and creating a demand for today’s generation strategy and be open for innovations.
After developing a business model, we will proceed in developing a business plan. To
be able to successfully complete this module, you need to prepare a business plan
and operate your plan and finally keep records of your business transactions.

A business model is a high-level plan for profitably operating a business in

a specific marketplace. A primary component of the business model is the value
proposition. This is a description of the goods or services that a company offers and
why they are desirable to customers or clients, ideally stated in a way that
differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup

costs and financing sources, the target customer base for the business, marketing
strategy, a review of the competition, and projections of revenues and expenses. The
plan may also define opportunities in which the business can partner with other
established companies. For example, the business model for an advertising business
may identify benefits from an arrangement for referrals to and from a printing
company.

It is very important to have a business model that allows them to fulfill

clients’ needs at a competitive price and a sustainable cost.

By evaluating a company's business model, investors will know if the

business is doing fine. It may not tell you everything about a company's prospects.
But the investor who understands the business model can make better sense of the
financial data.

The Business Model Canvas categorizes the processes and internal

activities of a business into 9 separate categories, each representing a building block
in the creation of the product or service.

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 Nine Basic Building Blocks of Basic Business Models

1. CUSTOMER-SEGMENTS -
Who are our most important customers? For
whom are we creating value?
is an essential part of an organization’s business
model and is key to ensuring that the product
features are aligned with the segment’s
characteristics and needs? To carry out an
effective customer segmentation, a company
must first know its customers, both through
their current and future needs.

Based from Business Generation Model Canvass by Alexander Osterwalder

2. VALUE PROPOSITIONS –
What value do we deliver to the
customer? Which one of our
customer’s problems are we helping
to solve? Which customer needs are
we satisfying? What bundles of
products and services are we offering
to each customer segments.

An organization’s value proposition

is the combination of products and
services it provides to its customers.
Osterwalder stated that these
offerings need to be unique and
easily differentiated from
competition. Based from Business Generation Model Canvass by Alexander Osterwalder

Value propositions can be divided into two categories:

1. Quantitative: this stresses the price or efficiency of the product or service

2. Qualitative: this value proposition highlights the experience and results the
product and its use, produce. The value proposition provides value through a
number of attributes such as customization, performance, “getting the job done”,
brand/ status, design, newness, price, cost and risk reduction, accessibility, as well
as convenience/ usability. When creating your product’s value proposition, the first
question an entrepreneur must ask himself is, what problem he is solving through
his offered product or service. Then one needs to look into how the product, service

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or overall experience can be improved so that it provides greater value than the
competition. Finally, it is imperative to identify the core value that your business
provides. One way to identify this value is for an owner to specify what he/ she wants
customers to remember about their interaction with the company.

3. CHANNELS – Through which

channels do our customer segments
want to be reached? How are we
reaching them now? How are our
channels integrated? Which ones work
best? Which ones are most cost-
efficient? How are we integrating them
with customer routines?

There are two basic kinds of

channels; Company owned channels
Based from Business Generation Model Canvass by Alexander
Osterwalder
such as store fronts or Partner
Channels such as Distributors. A company can opt to choose either one or employ a
combination of both.

For an entrepreneur, the first step in dealing with channels is to identify the
customer channels. Touch points with customers can be limited or diverse
depending on company strategy. Then he/ she needs to evaluate the strength of the
channel by conducting an SWOT analysis on the channel. Finally, the company can
identify and build new customer channels.

4. Customer-Relationship
What type of relationship does each
of our customer segments expect us
to establish and maintain with
them? Which ones have we
established? How costly are they?
How are they integrated with the rest
of our business model.

Relationships can be categorized as

follows:
1. Personal Assistance:
Based from Business Generation Model Canvass by Alexander Osterwalder
In this kind of relationship
the company interacts with the
customer directly through an employee who provides the human touch by assisting
the customer presale, during the sale and even may provide after sales services.

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 2. Dedicated Personal Assistance:
This kind of relationship is characterized by a very close interaction between
the customer and the company through a dedicated representative who is assigned
a set of clients and is personally responsible for the entire experience the customer
has with the company.

3. Self-Service:
Self-Service places the onus of the customer experience on the tools the
company provides for the customer to serve him or herself.

4. Automated Services:
These are customized self-service relationships where the historical preference
of the customer is considered to improve the overall experience.

5. Communities:
In today’s electronic age creating communities of clients allows organizations
to communicate with them directly. This allows for an enhanced client experience
because the community allows clients to share their experiences and come up with
common challenges and solutions.

6. Co-creation:
The customer has a direct hand in the form the company’s product or service
will take.

5. Key Resources
What Key Resources do our Value
Prepositions require! Our Distribution
Channels? Customer Relationships?
Revenue Streams?

6. REVENUE STREAMS
For what Value are our customers really
willing to pay? For what do they currently
pay? How are they currently paying? How
would they prefer to pay? How much does
each Revenue Stream contribute to overall
Revenue?

A revenue stream is the methodology a

company follows to get its customer
segments to buy its product or
Based from Business Generation Model Canvass by Alexander Osterwalder
service.

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A revenue stream can be created through the following ways:
1. Asset Sale: the company sells the right of
ownership over the good to the customer.

2. Usage Fee: the company charges the

customer for the use of its product or service.

3. Subscription Fee: the company charges the customer for the regular and
consistent use of its product or service.

4. Lending/ Leasing/ Renting: the customer pays to get exclusive access to

the product for a time-bound period.

5. Licensing: the company charges for the use of its intellectual property.

6. Brokerage Fees: companies or individuals that act as an intermediary

between two parties charge a brokerage fee for their services.

7. Advertising: a company charges for others to advertise their products using

their mediums. When setting up revenue streams, it is important to recognize
that an effective price for the product and/or service will be arrived at through
the process of elimination. Different iterations of prices should be listed and
evaluated. It is important, in the end to take a break ad reflect on possible
avenues open to you as a business.

7. KEY ACTIVITIES

What Key Activities do our value

Prepositions require? Our
Distribution Channels?
Customer Relationships?
Revenue Streams?

Activities that are key to

producing the company’s value
proposition. An entrepreneur
must start by listing the key
activities relevant to his/her
business.

Based from Business Generation Model Canvass by Alexander Osterwalder

These activities are the most

important processes that need to occur for the business model to be effective. Key
activities will coincide with revenue streams. Now it is important to evaluate which
activities are key by adding or removing some and evaluating their impact.

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 8. KEY PARTNERS
Who are our Key Partners? Who are our Key
Suppliers? Which Key Resources are we
acquiring from Partners? Which Key
Activities do partners perform?

Partnerships can be categorized as follows:

• Strategic alliance between competitors
(also known as coopetition),
• Joint ventures and • Relationships
between buyers and suppliers.
An entrepreneur must begin by identifying
its key partners followed by making future
partnership plans. This can be done
through an evaluation of the partnership
Based from Business Generation Model Canvass by Alexander Osterwalder
relationship to judge which characteristics
of the relationship need improvement and
what kind of future partnerships will be
required.

9. COST STRUCTURE
What are the most important cost inherent in
our business model? Which Key
Resources are most expensive which
Key Activities are most expensive?

Following are some traits of common

cost structures:
1. Fixed Costs: costs that
remain the same over a period of time

2. Variable Costs: as the

Based from Business Generation Model Canvass by Alexander Osterwalder
name suggests, these costs vary
according to a variance in production

3. Economies of Scale: costs decrease as production increases

4. Economies of Scope: costs are decreased by investing in businesses

related to the core product.

The first step for an entrepreneur is to obviously identify all costs associated with
the business. A realistic understanding of the costs of the business is one of the
hallmarks of a good business model. After identification, it is important to list all the
costs on the canvas, so they are visually present and then create plans for each cost.
Some costs may be decreased through certain measures while others may go up if
you decide that an investment in a particular section will result in future gains

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 Forming these Nine (9) Building Blocks of Business Model
together into a bigger picture will turn and create a concept
that will be a great and useful tool for entrepreneurs.

Based from Business Generation Model Canvass by Alexander Osterwalder

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 Explore

ENRICHMENT ACTIVITIES

Activity 1

From the given Business Model Canvass below, DESIGN AND DESCRIBE your own
business idea that will fit and meet the market. Make sure to be a detailed as
possible to grasp full understanding of what you need to do, obtain and develop to
turn your idea into a profitable business. Make sure you write down is relevant and
appropriate. Complete the Business Model for your business to be.

Based from Business Generation Model Canvass by Alexander Osterwalder

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 Deepen

Work out
Hope that you have gained a lot of knowledge on the discussion. This time let us test
your understanding by doing the following activity! Good luck!

Direction:

Answer the following questions:

1. What value proposition will you offer to which customer groups?

(Qualitative or Quantitative)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

2. Which channels do you need to establish to gain attention, market access and
co-creative capacity with stakeholders? (Company-owned Channels (store fronts),
Partner-Channels (Distributors)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

3. What types of customer relationships are necessary to build long-lasting

customer loyalty from your end users? (Personal, Assistance, Dedicated, Personal
Assistance, Self-Service, Automated, Communities, Co-creation)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________________
________________________________________________________________________________

4. What will do yourselves or under your direct management and what will you do
in cooperation or outsource to 3rd parties? Why?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

5. Which companies would you like to or need to partner up with? What will be
their role and contribution and what will be yours?

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

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 LESSON Forecast The Revenue of
2 the Business and the Cost
to be Incurred
Since you already know and identified the business to undertake, the tools
and basic principles needed in the operation of your business, then you should know
now the what is forecasting revenues and costs, in the context of business.
Entrepreneurs use forecasting techniques to determine events that might affect the
operation of the business such as sales expectations, costs incurred in the business
as well as the profit that the business is earning.

Venturing into business without proper estimation and careful

consideration will somehow affect your business future standing and decision
making.

This lesson is divided into two parts that will help and guide you to;
I. Forecast the revenues and profits of your chosen business.
II. Forecast the revenue to be incurred.

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 Jumpstart

Activity 1
Based from your experienced last year, have you tried recording the
amount of money you spend from your daily allowances or even today despite of the
pandemic? You might be experiencing difficulties in making your allowance meet
your daily needs as student. Let you discover how good you are in monitoring your
own expenses and how you manage the resources that you have.

Kindly fill in the information below to come up with a breakdown of your

daily allowance last year or this present year.

Breakdown on Daily Allowance

(Based on your allowance last year)

Name: ______________________ Strand:_____________ Section: ________

Address: ________________________________________________________________________
_________________________________________________________________________________

Daily Allowance: Ᵽ __________

Less: Daily Expenses
Food Ᵽ_________
Fare _________
School Supplies _________
Recreation _________
Others _________ ___________
Total Ᵽ ___________

Savings: ____________

You may answer the following questions below with Yes or No and Why?
1. Were you able to get a positive total?
2. How much did you spent?
3. Have you spent your daily allowance wisely and saved some?
4. Did you spend all your allowance and ended up with a zero total?
5. Did you 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.

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 Discover

UNLOCKING TERMINOLOGIES:

1. FORECASTING- is an act of predicting the future economic

conditions on the basis of past and present information. It refers to the
technique of taking a prospective view of things likely to shape the turn of
things in foreseeable future. As future is always uncertain, there is a need
of organized system of forecasting in a business.

2. REVENUE – (NOUN) income, especially when of a company or organization and

of a substantial nature.

3. COST - (VERB) (of an object or action) require the payment of (a specified sum
of money) before it can be acquired or done.
(NOUN) an amount that has to be paid or spent to buy or obtain
Something

4. EARNED – (NOUN) money derived from paid work. Often contrasted w

with unearned income.

5. INCUR/INCURRED – (VERB)incurred (past tense) · incurred (past participle)

To use a resource and record it in accounting system.

I. FORECASTING THE REVENUE OF THE BUSINESS

Forecasting is a tool used in planning that aims to support management
or a business owner in its desire to adjust and cope up with uncertainties of the
future. Forecasting depend on data from the past and present and make meaningful
estimates on revenues and costs. Revenue is a result when sales exceed the cost to
produce goods or render the services. Cost on the other hand simply refers to the
amount of money used to produce or manufacture goods/merchandise as well as
costs incurred in selling the goods/merchandise.

Understanding revenue = understanding your business = growing your

business.

Revenue is the most fundamental metric for any company, and yet it is
seldom understood perfectly. First, there is more than one type of revenue. Second,
recording it and calculating it get progressively more complex as your business
scales. And third, after you’ve calculated it, you must know what to do with it.

Revenue (sometimes referred to as sales revenue) is the amount of gross

income produced through sales of products or services. A simple way to solve for
revenue is by multiplying the number of sales and the sales price or average service
price or average service price (Revenue= Sales x Average Price of Service or Sales x
Average Price of Service or Sales Price).

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 Not all revenues are equal, being able to differentiate between net and gross
revenue is so vital.

Net Revenue vs Gross Revenue

Misconceptions about net and gross revenue can significantly affect your
business’ income tax.

GROSS REVENUE concerns all income from a sale, with no consideration

for any expenditures from any source.

If a store owner sells a limited edition of iPhone worth P50,000.00, the

gross revenue would be P50,000.00

NET REVENUE subtracts the cost of goods sold from gross revenue. Fees
for production, shipping, and storage, as well as any discounts, allowances, and
returns, can all potentially contribute toward his cost. Net Revenue from an item worth
P50,000.00 that cost P10,000.00 to make it P40,000.00.

GROSS REVENUE = P50,000.00

Less Cost of goods Sold = 10,000.00
Net Revenue = P40,000.00

Net Revenue is often listed on an income statement at the bottom, hence

the term “the bottom line.

Revenue
Revenue from other Operation P50,000.00
Other Revenue P 1, 100,000.00
Total P1,150,000.00

Expense
Payroll P150,000.00
Maintenance P55,000.00
Insurance P20,000.00
Tax P100,000.00
Interest P5,000.00

Net Profit P 820,000

HOW TO CALCULATE REVENUE

The Sales Revenue formula calculates revenue by multiplying the number

of units sold by the average unit price. Service-based business calculates the
formula slightly differently: by multiplying the number of customers by the average
service price.

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Product-based business formula:
Revenue = Number of Units sold x Average Price of Service

Products X Price = Revenue

Service-based company’s formula:

Revenue = Number of Customers x Average Price of Services

Customers X Price = Price

Here's some detail on how to go about building financial forecasts when

you're just getting your business off the ground and don't have the luxury of
experience.

1. Start with expenses, not revenues. When you're in the startup stage, it's much
easier to forecast expenses than revenues. So start with estimates for the most
common categories of expenses as follows:

Fixed Costs/Overhead

 Rent
 Utility bills
 Phone bills/communication costs
 Accounting/bookkeeping
 Legal/insurance/licensing fees
 Postage
 Technology
 Advertising & marketing
 Salaries

Variable Costs

 Cost of Goods Sold

 Materials and supplies
 Packaging
 Direct Labor Costs
 Customer service
 Direct sales
 Direct marketing

2. Forecast revenues using both a conservative case and an aggressive case. If

you're like most entrepreneurs, you'll constantly fluctuate between conservative
reality and an aggressive dream state which keeps you motivated and helps you
inspire others. I call this dream state "audacious optimism."

3. Check the key ratios to make sure your projections are sound. After making
aggressive revenue forecasts, it's easy to forget about expenses. Many entrepreneurs
will optimistically focus on reaching revenue goals and assume the expenses can be

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adjusted to accommodate reality if revenue doesn't materialize. The power of positive
thinking might help you grow sales, but it's not enough to pay your bills!

Gross margin. What's the ratio of total direct costs to total revenue during a
given quarter or given year? This is one of the areas in which aggressive assumptions
typically become too unrealistic. Beware of assumptions that make your gross
margin increase from 10 to 50 percent. If customer service and direct sales expenses
are high now, they'll likely be high in the future.

Operating profit margin. What's the ratio of total operating costs--direct

costs and overheard, excluding financing costs--to total revenue during a given
quarter or given year? You should expect positive movement with this ratio. As
revenues grow, overhead costs should represent a small proportion of total costs and
your operating profit margin should improve.

Total headcount per client. If you're a one-man-army entrepreneur who

plans to grow the business on your own, pay special attention to this ratio. Divide
the number of employees at your company--just one if you're a jack-of-all-trades--by
the total number of clients you have.

In estimating potential revenue for the business, factors such as external and
internal factors that can affect the business must be considered.

These factors should serve as basis in forecasting revenues of the business.

These factors are:

1. The economic condition of the country. When the economy grows, its growth
is experienced by the consumers. Consumers are more likely to buy products and
services.

2. The competing businesses or competitors. Observe how your competitors

are doing business. Since you share the same market with them, information about
the number of products sold daily or the number of items they are carrying will give
you the idea as to how much your competitors are selling.

3. Changes happening in the community. Changes’ happening in the

environment such as customer demographic, lifestyle and buying behaviour gives
the entrepreneur a better perspective about the market.

4. The internal aspect of the business. Another factor that affects forecasting
revenues in the business itself. Plant capacity often plays a very important role in
forecasting.

II. FORECAST THE COST TO BE INCURRED.

What is cost incurred?

A cost incurred is a cost that a company (or other organization) becomes liable for.

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Example of Cost Incurred:

Assume that a retailer begins operations on December 1 and its electric meter is read
by the utility on the last day of every month. During December the retailer will
have incurred the cost of the electricity it used during December.
Under the accrual basis of accounting the retailer must report a current liability on
December 31 for the amount owed to the utility for the electricity it used to that
point. On its income statement for December, the retailer must also report electricity
expense for the cost of the electricity that it used during December. This may require
the retailer to record an accrual adjusting entries with an estimated amount (if the
electricity bill is not received in time).

This accrual accounting concept requires businesses to record expenses when they
are incurred rather than when they are paid. This way the expenses are of the
company are recorded in the same period as the revenues related to those expenses.
This concept is called the matching principle. GAAP requires that the matching
principle be used on all financial accounting and statements in order to present a
consistent picture of the company’s activities.

Let’s take a look at an example when certain costs are incurred.

Example
1. Machinery, life 1yr, P300,000
2. Prepaid rent at the start of the year P24,000
3. The company receives its telephone/INTERNET bill on the 15th of every month
and has steadily been P2,400.00
4. Supplies inventory, originally P3,000.00, is now only half its original quantity.
5. Here are the costs that would be incurred and expensed during the period.

Depreciation: P25,000
All months that benefited from the use of Juana, the owner of FAUNA AND FLORA
GARDENS, she has to determine which costs have already been incurred in
November 2020 based on the following information:

Machinery must also share in its cost. Depreciation expense in November 2020 is
P25,000, the total cost divided by its life in months. P300,00/12 = P25,000.00

Rental: P2,000
Prepaid rent at the beginning of the year becomes an incurred cost as the company
uses up its benefits over it. That is the total divided by the number of months.

Telephone/Internet: P2,400.00
Although the company has yet to receive its billing statement, it is already liable for
its communication expense since it has used this resource for the month.

Supplies: P1,500
The cost incurred for supplies only includes the used up portion of such. The other
half remains an asset at the end of the month.

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As you can see, these costs are incurred when they are used up or the company has
become liable for them. Thus, they are recorded as expenses in this period.

These costs are incurred each time revenues are generated. On the other
hand, the business also incurs 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
 Supplies


These 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.

Calculating operating expenses uses a simple formula:

Operating Cost = COGS +Operating Expenses

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.

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 plants 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 costs. In a merchandising

business such as FAUNA AND FLORA GARDENS Selling Business, the formula to
compute for costs of goods sold is as follows:

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Cost of goods sold = Average items sold – Freight -in

Let us calculate the cost of goods sold for selling business. the costs incurred
during the first month of operation of FLORA AND FAUNA Selling Business.
Cost of goods is calculated by simply multiplying the number of items sold every
month to its corresponding cost per unit. A cost in transporting the goods from the
supplier to the seller or Freight-in is then added to Net Cost of Purchases.

Example:

Juana, owner of FLORA AND FAUNA, started the business during the
Corona Virus Pandemic that forced many of us to be confined into our homes. She
wanted to help, inspire and support her neighborhood in whatever she can.

She knows that planting and gardening then became so popular and
trending within communities and localities. It helped people get outside while
bringing them a little peace of mind that’s why, she decided to put a business that
will create connection within them.

She gets her supplies once a week from a local dealer in the nearby city by
paying P200.00 per delivery.

Below is the cost per piece. She added 50 percent mark-up.

Ten Top Outdoors/Indoors Plants with prices available in her garden:
1. Begonia P200.00 6. Caladium P250.00
2. Vietnam Rose 50.00 7. Roses 150.00
3. Pothos 150.00 8. Coleus 100.00
4. Snake Plants 100.00 9. Herbal Plants 150.00
5. Succulents 150.00 10. Gumamela 250.00

Explore

ENRICHMENT ACTIVITIES

Activity 1
Direction: Based on our examples given above of FAUNA AND FLORA GARDENS,
Answer the following ques

1. If assumed that Flora and Fauna pays P200.00/weekly for the delivery charge.
How much will the owner pays for a month for the Freight-In?
a. P200 c. P800.00
b. P600 d. P400.00

2. If FLORA AND FAUNA GARDENS sold an average of 10 plants a day, one piece
of its kind, how much is the sales for a day, week and month?
a. P1,000.00, 10,000, 50,000 c. P1,500,10,850, 43,000
b. P1,550.00, 10,850,43,400 d. P1,540,10,750, 43,400

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3. Identify the expenses that the business incurs in its operation by filling in the
missing amount based on the information given above of FAUNA AND FLORA
GARDENS operating expenses.

Operating Expenses
Add: Internet Connection P __________
Utilities (Electricity) __________
Depreciation __________
Supplies __________
Miscellaneous expense P _______
Total Operating Expense P

4. To compute the Cost of goods sold of FLORA AND FAUNA GARDENS in a month,
following the simple formula, it will be;
a. Cost of goods sold = Items sold less Freight -in
b. Cost of goods sold = items sold multiply by freight- in
c. Cost of goods sold = items sold add the freight – in
d. Cost of goods sold = items sold divided by the transportation expenses

5. What will be the correct amount of the Cost of goods sold in a month for Fauna
and Flora Gardens?
a. P43,400 – 600 c. P43,500 -800
b. P43,400 – 700 d. P43,400-800

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 Deepen

Now that you know how to calculate the costs of a business, observe
within your locality the existing businesses, such as sari-sari stores, plants and
flower shop, boutique, RTW, Fish and Vegetables, or even buy and sell business.
Using the table for Costs of Goods Sold (Daily) below. Fill in the necessary
figures from the business you have selected.

Projected Cost of Goods Sold (Daily)

Business Name: ________________________________
Address:

Goods/Merchandise Cost/Unit Average no. of Cost of Purchases

items sold daily Daily

Total

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 Gauge

Directions: Read carefully the questions and choose the letter of the correct
answer and write it on a separate sheet.

1. Refers to goods and merchandise at the beginning of operation of business

or accounting period.
a. Merchandise Inventory, end c. Expenses
b. Merchandise Inventory, beginning d. Freight-in

2. Mrs. Juana, sold 15 roses at P150.00 each, she needs to purchase another
15 roses for her garden display, she needs to pay 200.00 for the
freight-in. Calculate how much is the cost of goods sold?
a. 2,020.00 c. 2,050.00
b. 2,270.00 d. 2,000.00

3. Refers to amount paid to transport goods or merchandise purchased from

the supplier to the buyer.
a. Merchandise Inventory, end c. Expenses
b. Merchandise Inventory, beginning d. Freight-in

4. Costs incurred through payment of utilities such as electricity and water -

a. Revenue c. Mark-up
b. Operating expenses d. Free

5. Merchandise or goods purchased are referred to as –

a. Purchases c. Costs
b. Operating Expenses d. Loss

6. It is the result when cost to produce goods or render services is greater than
the sales –
a. Selling c. Benchmarking
b. Revenue d. Loss

7. It is a tool that allows managers to make educated estimates on revenue and

costs of the business in order to cope up with uncertainties of the future
a. Estimating c. Guessing
b. Forecasting d. Benchmarking

8. Freight-in refers to the amount paid to transfer goods or merchandise

purchased from the _________.
a. Buyer to the supplier c. Buyer to buyer
b. Supplier to the buyer d. Supplier to supplier

27
9. The costs incurred through payment of utilities such as water, electricity,
internet connection is considered as
a. Costs c. Operating expenses
b. Purchases d. Personal Expense of the
owner
10. Term used for the amount paid to transport goods or merchandise purchased
the supplier to the buyer.
a. Merchandise c. Freight -In
b. expenses d. Operating expenses

11. Costs incurred through payment of utilities such as electricity and water -
a. Revenue c. Mark-up
b. Operating expenses d. Free
12. Merchandise or goods purchased are referred to as
a. Purchases c. Costs
b. Operating Expenses d. Loss

13. It is the result when sales exceed the cost to produce goods ender services
is greater than the sales
a. Selling b. Revenue c. Benchmarking d. Loss

14. This is a methodology a company follows to get its customer segments to buy its
product or service. What building blocks of business model does it fall?
a. Customer - segments c. Customer-relationship
b. Key Activities d. Revenue Streams
15. Based from the business model canvas presented in our model, a company
should know first its customers, both through their current and future needs for
they are essential part of an organization’s business.
a. Customer - segments c. Customer-relationship
b. Key Activities d. Revenue Streams

28
Key Answers
Lesson 1

Lesson 2

EXPLORE

1. C
2. D
3. Operating Expenses
Add: Internet Connection P 2,400.00
Depreciation 25,000.00
Supplies 2,000.00
Total Operating Expense P 29,000.00
4. A
5. D

GAUGE:
1. B 6. D 11. B
2. C 7. B 12. A
3. D 8. B 13. D
4. B 9. C 14. D
5. D 10. C 15. A

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References

Books

Ballada, Win Ballada, Susan. Basic Financial Accounting and Reporting Made Easy. San
Juan, Sampalok. Domdane Publishers 2019

Curriculum Guide shs Applied Track- Entrepreneurship

DepEd (2016). K to 12 Curriculum Guide. Entrepreneurship
Edralin, Divina M. Entrepreneurship. Quezon City: Vibal Group, Inc. 2016,
80 – 83.

Leedy, P. and Ormrod, J. Practical Research: Planning and Design 7th

Edition. (Merrill Prentice Hall and SAGE Publications, 2001),

Nick L. Aduana, Entrepreneurship in Philippine Setting (for Senior High

School), 2017

Dr. Eduardo A. Morato Jr., Entrepreneurship, 2016

Angeles A. De Guzman, Entrepreneurship for Senior High School Applied

Subject ABM Strand,Lorimar Publishing,p.1-5

Ronaldo S. Batisan, Entrepreneurship: Diwa Senior High School Series,

Diwa Learning Systems Inc., p. 16-20

Eduardo A. Morato Jr., Entrepreneurship, 1st ed., Manila, Philippines:

REX Books
Store,p.13

Links

 https://www.investopedia.com/terms/b/businessmodel.asp#:~:text=A%20business
%20model%20is%20a,model%20are%20pricing%20and%20costs.
 https://hbr.org/2015/01/what-is-a-business-model
Andrea Ovans,
 https://www.businessmanagementideas.com/business-forecasting/business-
forecasting-meaning-steps-and-sources/3934
 https://www.universalclass.com/articles/business/basic-methods-and-
calculations-of-financial-and-cost-analysis.htm#:
How to Perform a Cost Analysis | Universal Class
 https://www.bizmodelbook.com/index.php/worksheets/
 https://en.wikipedia.org/wiki/Business_Model_Canvas
https://www.alexandercowan.com/business-model-canvas-templates/

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