FORECAST

• 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


  Making informed estimates about revenues and calculated estimates involving costs incurred by the business
• Factors affecting forecasting


  • Economic condition of the country
  • Competing businesses or competitors
  • Changes happening in the community
  • Internal aspects of the business
• Forecasting revenues


  1. Identify mark-up and selling price

  2. Compute projected revenues
• Forecasting costs


  Compute projected costs
• Forecasting depends on data from the past and present and makes meaningful estimates on revenues and costs
• Forecasting revenues and costs is the same as weather forecasting, though forecasting revenues and costs is 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
• Making informed estimates reduces risks that might be experienced by the entrepreneur in the future
• Revenue


  Result when sales exceed the cost to produce goods or render the services
• Mark-up


  Amount added to the cost of a product to determine the selling price
• Ready to Wear Online Selling Business

  • Average 10 t-shirts sold per day
  • Average 6 pairs of fashion jeans sold per day
  • Cost per t-shirt is 90 pesos
  • Cost per pair of fashion jeans is 230 pesos
  • 50% mark-up added to every piece of RTW sold
• Mark up


  The amount added to the cost to come up with the selling price
• Type of RTW's


  • T-Shirts
  • Jeans
• Cost per Unit


  The cost of each item before adding the mark up
• Mark-up


  50% added to the cost to get the selling price
• Selling Price


  The price the item is sold for, which is the cost plus the mark up
• Projected Volume


  The expected number of items sold per day
• Revenues are projected to increase by 5% each month from February to May
• Revenues are projected to increase by 10% in June
• Revenues are projected to remain the same in July and August
• Revenues are projected to decrease by 5% each month from September to October
• Revenues are projected to increase by 5% in November
• Revenues are projected to increase by 10% in December
• Projected revenues are just gross revenue, not net profit
• Entrepreneurs should consider factors like seasonality, economic conditions, and changes in customer preferences when projecting revenues
• Cost of Goods Sold / Cost of Sales

  The amount of merchandise or goods sold by the business for a given period of time
• Merchandise Inventory, beginning


  Goods and merchandise at the beginning of operation of business or accounting period
• Purchases


  The merchandise or goods purchased, e.g. cost to buy each pair of Jeans or t-shirt from a supplier
• Merchandise Inventory, end


  Goods and merchandise left at the end of operation or accounting period
• Freight-in


  Amount paid to transport goods or merchandise purchased from the supplier to the buyer
• In a merchandising business, the formula to compute for costs of goods sold is: Merchandise Inventory, beginning + Net Cost of Purchases + Freight-in - Merchandise Inventory, end
• Purchases


  The merchandise or goods purchased. Example: Cost to buy each pair of Jeans or t-shirt from a supplier
• Freight-in


  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
• Formula to compute for costs of goods sold in a merchandising business

  1. Merchandise Inventory, beginning

  2. Add: Net Cost of Purchases

  3. Freight-in

  4. Cost of Goods Available for Sale

  5. Less: Merchandise Inventory, end

  6. Cost of Goods Sold
• Since Ms. Nista gets her stocks from an online supplier, there is no need to order ahead and stock more items. Therefore, there is no Merchandise Inventory, beginning as well as Merchandise Inventory, end
• Ready to wear items purchased online from the supplier are then sold as soon as they arrived
• Calculating cost of goods sold

  1. Multiply the number of items sold every month to its corresponding cost per unit

  2. Add Freight-in to Net Cost of Purchases
• At an average, Ms. Nista pays at least 250.00 pesos for every 12 items delivered successfully by her supplier through a courier service
• Since her average order is 480 pieces every month, she pays: 480 pcs. / 12 pcs. = 40, 40 x 250.00 = 10,000.00