Quarter 1 — Module 1

Introduction to Entrepreneurship
What I Need to Know

Businesses are the backbone of the economy. Entrepreneurs play an important

role in developing the economy through providing the needed products and services
including the solution to the problem of unemployment.

Entrepreneurship is encouraged by the economy because it can provide a lot

of opportunities for the unemployed people. It will increase per capita income, improve
standard of living and increase individual savings, provide revenue to the government
in the form of income tax, value added tax, export duties, import duties, and balanced
regional development.

After reading this module, the learners should be able to:

1. discuss the relevance of the course;
2. explain the key concepts of common competencies;
3. explain the core competencies in Entrepreneurship; and
4. explore job opportunities for Entrepreneurship as a career.

In going through the module, you have to extend your patience in understanding
and analyzing what you are reading. Follow the directions and/or instructions in the
activities. Answer the given tests and exercises carefully. Comply the required
activities provided.

2
What I Know

Before starting with this module, let us see what you already know
about Entrepreneurship. Answer the questions below.

Instruction: Read the statements carefully then write True if the statement is
correct & write False if you think the statement is not correct.

1. Entrepreneur means “to undertake.”

2. Entrepreneurship is a process of actions of an entrepreneur who

is always in search of opportunities.

3. The greatest significance of entrepreneurship is to help

identify and develop the managerial capabilities of entrepreneurs.

4. Entrepreneurship will lead to the creation of organizations.

5. Entrepreneurship can improve the life of the entrepreneur only.

6. Coward people will become successful entrepreneurs.

7. An entrepreneur is a “Risk Taker”.

8. Entrepreneurship is not an economic activity.

9. Entrepreneurs are innovative.

10. Profit potential is the compensation of the entrepreneur.

11. An entrepreneur can become a business consultant.

12. An entrepreneur can also be a researcher.

13. An entrepreneur can also become a salesman.

14. Entrepreneurship graduates can become business

reporters.

15. The entrepreneur could easily see the results of his efforts.

3
Lesson
Introduction to Entrepreneurship
1

What’s In

Before we will proceed to our lesson, can you tell me what comes into your
mind when you hear the word Entrepreneur? Write it on your activity notebook. (All
answers will be accepted)

What’s New

Activity 1. Let Me Know

Give at least five (5) names of entrepreneurs that you know, may it be from your
locality or within the Philippines. Identify what are their common traits as
entrepreneurs. Write it on your activity notebook and submit it to your teacher.

4
What is it?

Competencies of Entrepreneurs

Activity 2. Essay

Explain the following questions below about the competencies

of entrepreneurs.

1. What characteristics can you observe or see that are common among the
entrepreneurs that you have listed?

2. Who among the entrepreneurs that you mentioned do you admire the
most and why?

3. In your own opinion, what do you need to possess to become a

successful entrepreneur?

RUBRIC FOR ESSAY

Content The content was well-thought, guide 4
questions were thoroughly answered

Organization The paper was well-written with ideas 3

easily conveyed to readers.

Development Points are thoroughly developed 3

TOTAL 10

RELEVANCE OF ENTREPRENEURSHIP TO AN ORGANIZATION

1. Development of Managerial Capabilities - this means that one of the

benefits an entrepreneur gets is to develop his managerial skills.

2. Creation of Organizations - which means that because of entrepreneurship

many organizations will exist.

3. Improving Standard of Living - this means that entrepreneurship can lift up

the economic status of an individual.

4. Means of Economic Development - this means that not only the life of the
entrepreneur is improved but also the society where the business is located.

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Concept of Entrepreneurship

The word “entrepreneur” was derived from the French verb enterprendre,
which means “to undertake.” This is pinpointing to those who “undertake” the risk of
enterprise. The enterprise is created by an entrepreneur and the process is called
“Entrepreneurship.”

Entrepreneurs are innovators. They are willing to take the risks and generate
unique ideas that can provide profitable solutions to the needs of the market and the
society.

Factors Affecting Entrepreneurship

1. Personality Factors which include:

a. Initiative - doing things even before being told.

b. Proactive - which means he can classify opportunities and seize it.

c. Problem Solver - which means he can retain good relations with

other people.

d. Perseverance - meaning he will pursue things to get done regardless

of challenges.

e. Persuasion - means that he can entice people to buy even if they don’t want to.

f. A Planner - he makes plans before doing things and does not fail
to monitor it.

g. Risk-taker - which means that he is willing to gamble but he will calculate

it first.

2. Environmental Factors which include political, climate, legal

system, economic and social conditions and market situations.

Common Competencies in Entrepreneurship

1. Decisive - an entrepreneur must be firm in making decisions.

2. Communicator - an entrepreneur must have a convincing power.

3. Leader - an entrepreneur must have the charisma to be obeyed by

his employees.

4. Opportunity seeker - an entrepreneur must have the ability to be the first

to see business chances.

5. Proactive – an entrepreneur can control a situation by making things

happen or by preparing for possible future problems.
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6. Risk Taker – an entrepreneur has the courage to pursue business ideas.

7. Innovative - the entrepreneur has big business ideas and he does not stop
improving and thinking of new worthwhile ideas for his business.

Core Competencies in Entrepreneurship

1. Economic and Dynamic Activity - Entrepreneurship is an economic activity

because it involves the creation and operation of an enterprise with a view to
creating value or wealth by ensuring optimum utilization of limited resources.

2. Innovative – The entrepreneur constantly looks for new ideas, thus he needs
to be creative.

3. Profit Potential - The entrepreneur can be compensated by his profit coming

from the operation.

4. Risk bearing – The entrepreneur needs to gamble but wise enough to offset
the risk.

Types of Entrepreneurs

1. Innovative Entrepreneurs - They are those who always make new things by
thinking of new ideas. They have the ability to think newer, better and more
economical ideas.

2. Imitating Entrepreneurs - They are those who don’t create new things but only
follow the ideas of other entrepreneurs.

3. Fabian Entrepreneurs - They are skeptical about changes to be made in the

organization. They don’t initiate but follow only after they are satisfied.

4. Drone Entrepreneurs - They are those who live on the labor of others. They
are die-hard conservatives even ready to suffer the loss of business.

5. Social Entrepreneurs - They are those who initiate changes and drive social
innovation and transformation in the various fields such as education, health,
human rights, environment and enterprise development.

Career Opportunities of Entrepreneurship

1. Business Consultant - with the expertise of in the field of entrepreneurship,

he can be a very good source of advices to other entrepreneurs and would be
business men.

2. Teacher - a graduate of an entrepreneurship can use his knowledge in

teaching.

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3. Researcher - the entrepreneur can be employed as a researcher by an
enterprise.

4. Sales - the entrepreneurship graduate can apply as a salesman.

5. Business Reporter - the entrepreneur being expert in the field, can be

employed as a business reporter.

is What’s More

Activity 3. Self- Assessment

Direction: Find out if you have the qualities of an entrepreneur. Put a check mark
on the column that identifies whether you have the qualities of an entrepreneur or
not.

Qualities YES NO
Risk Taker
Communicator
Leader
Opportunity Seeker
Proactive
Innovator
Decisive

Interpretation: If you have more YES than NO, you have the qualities of
an entrepreneur.

What I Have Learned

are people who take the risk, they are innovators

and contributors to the development of the .

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What I Can Do

Activity 4. Interview the Known

Choose three successful entrepreneurs in your community or nearby places

and conduct an interview using the guide questions below. Discuss the result of your
interview to your teacher.

1. What motivated you to become an entrepreneur?

2. What do you think are your characteristics and competencies that made
you a successful entrepreneur?

3. What do you think of being employed? Why you did not choose that path?

Assessment
Now, that you are finished accomplishing the module, let us check what you have
learned. Answer the questions given below by encircling the letter of the correct
answer.

1. The entrepreneurs who create new ideas are called _ .

a. Innovative c. Fabian
b. Imitating d. Drone

2. The entrepreneur who lives on the labor of others is called .

a. Drone c. Imitating
b. Fabian d. Innovative

3. These are entrepreneurs who are to follow the path shown by

innovative entrepreneurs.
a. Innovative c. Social Entrepreneurs
b. Imitating d. Fabian

4. Which of the following does not belong to the group?

a. Skills management c. Conduct research
b. Risk taking d. Make no changes with his product

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5. Entrepreneur means:
a. Risk taker c. To research
b. To undertake d. To improve standard of living

6. It is a personality factor which means “doing things even before being told.”
a. proactive c. persuasion
b. perseverance d. initiative

7. It is a personality factor which means convincing customers to buy the product.

a. Proactive c. Self-confidence
b. Persuasion d. Risk-taker

8. Which of the choices is NOT part of the environmental factors?

a. Political c. Climate
b. Weather condition d. Family background of the manager

9. All except one does NOT belong to the group. Which one is it?
a. Unfair trade practices c. Political protest
b. Strikes d. Product

10. The entrepreneur who is skeptical about the changes in the company is called
a. Fabian c. Drone
b. Social entrepreneur d. Imitating

11. Which is NOT a career for an entrepreneur?

a. Business consultant c. Research and Development
b. Sales d. Domestic Helper

12. They are entrepreneurs who drive social innovation and transformation in
various fields.
a. Drone c. Fabian
b. Social entrepreneur d. Imitating

13. Which of the statements below is true?

a. Entrepreneurs have limited career opportunities.
b. Entrepreneurs are prone to constant high income.
c. Entrepreneurs are contributors to the development of the society.
d. Entrepreneurs are the reasons for the unemployment problem.

14. Which of the statements is NOT true?

a. An entrepreneur will patiently wait for his efforts to bear fruit.
b. The profit of the entrepreneur is immediate.
c. All entrepreneurs are successful.
d. Entrepreneurs are researcher.

15. Which of the following is NOT true?

a. Entrepreneurship creates organizations.
b. Entrepreneurs improve the life of the entrepreneur alone.
c. Entrepreneurs improves the economy.
d. None of the choices

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Additional Activities

Activity 5. Research Me

Research on the life story of at least three (3) entrepreneurs in your locality;
identify how they started their business. Ask how much was their start-up capital.

Congratulations! You have successfully completed Module 1.

Please proceed to Module 2 and learn about Recognizing a Potential Market

11
Quarter 1 — Module 2
Recognize a Potential Market
What I Need to Know

Welcome to the second module of Entrepreneurship. This module will allow you
to learn independently the knowledge and skills in recognizing a potential market. It
will guide you to identify the market problems to be solved or the market needs to be
met; and let you propose solution/s in terms of product/s and service/s that will match
the need using techniques on seeking, screening, and seizing opportunities. Also, in
this module we are going to identify the market problem and propose solutions with
regards to products and services, to continue discovering the ideal business you are
going to offer for your community. Basically, in return for your hard time of selling your
product you can generate profit.

In this module, you will know the following:

• Associate the market problem to be solved or the market need to be met.

• Look for solution/s in terms of product/s and service/s that will meet the need
using techniques on seeking, screening, and seizing opportunities.
• Break down the market need.

• Detect the possible product/s or service/s that will meet the need of your locality.

• Screen the proposed solution/s based on viability, profitability, and customer

need in developing a Business Plan.
• Choose the best product or service that will meet the market need.

This is your guide on how to develop a Business Plan. By identifying and

appealing to a particular group of consumers you need to check on the possible
product needed in your locality.

Business industries offer products and services. The activity of making, buying,
or selling goods or providing services in exchange of money is called business.
Product is something that is made or grown to be sold or use, or something that is
result of a process. Services are those intangible products where there is a skill
involved and has a value.

After completing this module, you need to:

• Learn and understand the sources of opportunities for business.

• Determine the essentials in the entrepreneur’s opportunity seeking.

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• Identify market problems and propose potential products or services that will
meet the market needs.

• Know the problem in which a business opportunity arises from.

• Identify, screen and propose solutions to meet the problem.

• Select the best product or service that will meet the market’s need with a
consideration of generating profit.

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What I Know

Let’s check first what you already know.

True or False. On the space provided before the number, write T if the statement is
true and F if the statement is false.

_ 1. An entrepreneur enters a business because of its profitability.

_ 2. New business ideas provide business opportunities.

_ 3. The entrepreneurial process starts with identification of entrepreneurial

opportunities.

_ 4. Not all changes in the external environment provides business opportunities.

_ 5. Discovery and advancement in the use of technology are additional good

sources of business opportunities.

_ 6. Interest and hobbies of the people are possible good sources of

entrepreneurial ideas.

_ 7. The industry environment of the business is under technological discovery

and advancement sources of opportunities.

_ 8. The variables in the physical environment include the economic forces.

_ 9. Entrepreneurial heart flame refers to the ability of the entrepreneur to

sense without using the five senses.

10. Entrepreneurial mind frame permits the entrepreneur to see things in a very
positive and optimistic light.

11. The business operates in the industry environment.

12. Opening a Halo – halo business during summer season is ideal.

13. Environmental scanning is conducted only when a new business is opened.

14. When the barriers to the competitive forces are high, the effect to the growth
of the business is likewise high.

_15. Entrepreneurs need not observe and evaluate the priorities of the
government.

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Lesson
Recognize a Potential Market
2

What’s In

In the previous lesson, you already know about the difference between a
businessman and an entrepreneur. Knowing all the entrepreneurial concepts will not
assure a person of becoming a successful entrepreneur and not all business people
are entrepreneurs. Some say being an entrepreneur is a calling; a lot of qualities must
be possessed to be considered successful and sustainable. So, if you are given
a great opportunity to venture into the field of entrepreneurship, it may be a long process
to undertake and you must have the willingness to take a risk. Also, you’re not only the
one who’s in progress but at the same time, you’re helping for the development growth
of our economy.

What’s New
FIX ME

Direction: Arrange the scrambled letters to form a correct word.

1. PSIERSPL 6. UTSBETIUST
2. NISSUBES 7. ICEVERS
3. KERTAM 8. PECITIONMTO
4. EDICRRSTO 9. IMCLTEA
5. SUTEMOSRC 10. NTERTSAN

16
What is It

Entrepreneurial Ideas

The creation of an entrepreneurial idea leads to the identification of

entrepreneurial opportunities, which in turn results in the opening of an entrepreneurial
venture.

The entrepreneurial process of creating a new venture is presented in the

diagram below. (Nick L. Aduana, Etrepreneurship in Philippine Setting for Senior High
School, 2017, C&E publishing page 46, Aduana, 2017).

Creation of Identification of Opening of

entrepreneurial entrepreneurial entrepreneurial
Ideas Opportunities Venture

Figure 1. The Entrepreneurial Process of Creating New Venture

Essentials in Entrepreneur’s Opportunity – Seeking

These are the basic foundation that the entrepreneur must have in seeking
opportunities:

Entrepreneurial mind frame. This allows the entrepreneur to see things in a

very positive and optimistic way in the midst of difficult situation. Being a risk - taker,
an entrepreneur can find solutions when problems arise.

Entrepreneurial heart flame. Entrepreneurs are driven by passion; they are

attracted to discover satisfaction in the act and process of discovery. Passion is the
great desire of an entrepreneur to achieve his/her goals.

Entrepreneurial gut game. This refers to the ability of the entrepreneur of

being intuitive. This also known as intuition. The gut game also means confidence in
one’s self and the firm belief that everything you aspire can be reached.

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Sources of Opportunities
There are many ways to discover opportunities. Looking at the big picture, some
have noticed the emerging trends and patterns for business opportunities. While others
are trying to find out their target market. The following are some sources of
opportunities:

1. Changes in the environment

Entrepreneurial ideas arise when changes happen in the external environment.
A person with an entrepreneurial drive views these changes positively. External
environment refers to the physical environment, societal environment, and industry
environment where the business operates.

1.1 The Physical environment includes

a. Climate – the weather conditions.
b. Natural resources – such as minerals, forests, water, and fertile land
that occur in nature and can be used for economic gain.
c. Wildlife – includes all mammals, birds, reptiles, fish, etc., that live in
the wild.

1.2 The Societal environment includes the various forces like

a. Political forces – includes all the laws, rules, and regulations that
govern business practices as well as the permits, approvals, and
licenses necessary to operate the business.
b. Economic forces – such as income level and employment rate.
c. Sociocultural forces – customs, lifestyles and values that
characterize a society.
d. Technological environment – new inventions and technology
innovations.

1.3 The Industry environment of the business includes:

a. Competitors
b. Customers
c. Creditors
d. Employees
e. Government
f. Suppliers

For example, one factor in the physical environment that can easily change
is the climate. The temperature is very high during summer but very low during the
rainy season. An individual with entrepreneurial drive can be extremely imaginative
and inventive in identifying opportunities. He/she can venture on a business that
responds to the needs of the people during summer and rainy season.

2. Technological discovery and advancement

A person with entrepreneurial interest sees possibility of business opportunities

in any new discovery or because of the use of latest technology.

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For example, an individual with knowledge in repair and installation of a
machine engine discovers additional engine parts that considerably reduce fuel
consumption.

3. Government’s thrust, programs, and policies

The priorities, projects, programs, and policies of the government are also good
sources of ideas.

For example, the use of firecrackers to celebrate New Year’s Eve is strictly
prohibited. People without entrepreneurial interest will view the ordinance as a plain
restriction. However, for an entrepreneur, it is a business opportunity to come up with
a new product that will serve as a substitute for firecrackers.

4. People’s interest

The interest, hobbies, and preferences of people are rich sources of

entrepreneurial ideas, like the increasing number of Internet Cafés at present could
lead to the strong attachment of young people to computers.

5. Past experiences

The expertise and skills developed by a person who has worked in a particular
field may lead to the opening of a related business enterprise.

For example, an accountant who has learned the appropriate accounting and
management skills and techniques in a prominent accounting firm can start his/her
business venture by opening his/her own accounting firm.

Forces of Competition Model

It is also known as the “five forces of competition”. An industry environment is

a competitive environment. Regardless of what product or services you have,
competition is always present.

Competition – it is the act or process of trying to get or win something.

For example, the prices are lower when there is a competition among the
stores.
These are the five forces competing within the industry:
• Buyers
• Potential new entrants
• Rivalry among existing firms
• Substitute products
• Supplier

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1. Buyers

The buyers are the ones that pay cash in exchange for your goods and services.
One example is the influence of the price or in the bargaining strategy. The buyer has
a strong and magnified bargaining power. The threat of its bargaining power will be
less if the following factors are noticed:
a. There are several suppliers available in the market.
b. The buyer has the potential for backward integration.
c. The cost of switching the supplier cost is minimal.
d. The product represents a high percentage of the buyer’s cost.
e. The buyer purchases large portions of the seller’s product or services.

2. Potential New Entrants

A new entrant is defined as companies or businesses that have the ability to

penetrate or enter into a particular industry. For example, in the level of capital
requirements, if the business requires huge capital, new entrants should decline to join
the business. This gives a threat to the business. This can be noticed if there is the
presence of the following factors:
a. Substantial capital requirement
b. Strict government policy
c. Difficulty in accessing distribution channels
d. Economies of scale
e. High cost of product differentiation
f. High switching cost

3. Rivalry among Existing Firms

Rivalry is a state or situation wherein business organizations are competing with

each other in a particular market. For example, it depends on the marketing strategy
of your competitor, like giving freebies and special offers. The intensity of rivalry among
existing firms is characterized to the following factors:
a. Diversity of rivals
b. Number of competing firms
c. Characteristics of the products or services
d. Increased capacity
e. Amount of fixed costs
f. Rate of industry growth

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4. Substitute Products

Substitute is one that serves the same purpose as another product in the
market. For example, the consumers decide to use margarine as a substitute for
butter. In case the price of butter increases, preferably the consumer will gradually
switch to margarine.

A substitute product can give a big threat in the industry environment if the following
factors are noticed:
a. Switching cost is low
b. Preferences and tastes of the customers easily change
c. Product differentiation is highly noticeable
d. The quality of substitute products dramatically improves
e. The price of substitute product is substantially lower

5. Suppliers

The Suppliers are the one that provide something that is needed in business
operations such as office supplies and equipment. In an example where supplies and
services being offered is unstable the intensity of the threat is strong in this kind of the
competitive force in the industry. This can be noticed if there is the presence of the
following factors:
a. The supplier has the ability for forward integration
b. Suppliers in the industry are few, but the sales volume is high
c. Substitute products are not readily available in the market
d. The switching cost is very high
e. The product or service is unique

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What’s More

WORD HUNT
Look for words in the puzzle related to the topic may it be horizontally, vertically, or
diagonally. Write the words on the space provided below.

V E N T U R E A B C D E F A B C D E F S
A B N P O H W Q G S D L O S J E T U E Q
B C T R P R O D U C T S R L R E H R B E
C V R E P G O Y T R E P T G S T V A C N
V H E N O V R F D A B C U D E I O G V T
H K B E R C T K R F G E N H C J R K H R
K I C I T H U L V D E O C E U A T U K E
I D V D U K N S J Y I R Z O Q E U Y I P
D G H G N O U A O F G T U X N X N D R
G L K L I P W L R E P U R E P O J O G E
L H Z H T S P K L I O N H L I O M E L N
H A X Q I M I L G C V R I V A L R Y H E
A D S J E T U R E A B B S T I T U H A U
S S U B S T I T U T E S J E T U R F J R
V T U R E A B Q R S J E T U T U R E A B

1. 6. ______________________
2. 7. ______________________
3. 8. ______________________
4. 9. ______________________
5. 10. ______________________

22
What I have Learned

Definition of Terms

Buyers – are the ones who pay cash in exchange for your goods and services.

Competition – it is the act or process of trying to get or win something.

Entrepreneurial process - can be defined as the steps taken in order to begin a new
enterprise. It is a step-by-step method one has to follow to set up a business.

Entrepreneurial ideas - an innovative concept that can be used for financial gain that
is usually centered on a product or service that can be offered for money.

Essentials of entrepreneur’s opportunity – seeking – these are the basic

foundation that the entrepreneur must have in seeking opportunities, such as
entrepreneurial mind frame, heart flame and gut game.

External environment - refers to the physical environment, societal environment, and

industry where the business operates.

Government - refers to the local government (municipality, city, or provincial) or the

national government and its branches.

New entrants – the one who enters something.

Opportunity – seeking – the process of considering, evaluating, and pursuing
market-based activities that are accepted to be beneficial for the business.

Rivalry – is a state or situation in which people or groups are competing with each
other.

Sources of opportunity - can be attained by assessing and looking at changes in the

environment; technological discovery and advancement; government’s thrust,
programs, and policies; people’s interest, and past experiences.

Substitute – anything that takes the place or function of another.

Suppliers – are the ones who provide something that is needed or wanted.

23
What I Can Do

Activity 3: COMPLETE ME

Complete the table below by supplying it with products that you consider similar. Write
the product and not the brand in their respective columns. Then describe and
differentiate its characteristics and uses.

Substitute Product
No.
Primary Product ( Product name )
( Product name )

Example Butter - expensive price used Margarine – lesser price also used as
as bread spread. bread spread

1.

2.

3.

4.

5.

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Post Assessment

Direction: Encircle the letter of your choice.

1. It is the process of considering, evaluating, and pursuing market-based

activities that are believed to be advantageous for the firm.
A. Opportunity – seeking C. Opportunity – screening
B. Opportunity – seizing D. Sources of opportunity

2. This is essential to opportunity – seeking which allows the entrepreneur to see

things in a positive and optimistic light in the midst of crisis or difficult
situations.
A. Entrepreneurial mind frame C. Entrepreneurial heart flame
B. Entrepreneurial gut game D. Entrepreneurial heart frame

3. It is the ability of entrepreneur that can sense without using the five senses,
also known as intuition.

A. Entrepreneurial mind frame C. Entrepreneurial heart flame

B. Entrepreneurial gut game D. Entrepreneurial heart frame

4. One of the essetials of entrepreneur’s opportunity – seeking that refers to the

driven passion of an individual.
A. Entrepreneurial mind frame C. Entrepreneurial heart flame
B. Entrepreneurial gut game D. Entrepreneurial heart frame

5. What variable of societal environment includes income level and employment

rate?

A. Economic forces C. Political forces

B. Sociocultural forces D. Technological forces

For questions 6 and 7 refer to the following statements:

A. Preferences and tastes of the customers easily change.

B. The buyer has the potential for backward integration.
C. The cost of switching the supplier cost is minimal.
D. Product differentiation is highly noticeable.
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6. Which are the factors of the substitute product that pose a great threat in the
industry environment?
A. A, B, C, D C. A and D
B. A and C D. B and C

7. Which are the factors that influence the buyer to have a less threats because
of the bargaining power?
A. A only C. A and D
B. A and C D. B and C

8. They are the ones who pay cash in exchange for your goods and services.
A. Buyers C. Sellers
B. Competitors D. Suppliers

9. The intensity of rivalry among existing firms is characterized to the following

factors except one:
A. Diversity of rivals
B. Number of competing firms
C. Characteristics of the products or services
D. The product represents a high percentage of the buyer’s cost

10. The following are the forces competing within the industry except one:
A. Potential new entrants and Substitute Products
B. Buyers and Suppliers
C. Rivalry among Existing Firms
D. Needs and Wants

11. Which of the following good sources of entrepreneurial ideas determine the
interest, hobbies and preferences of people.
A. Changes in the environment C. People’s interest
B. Technological discovery D. Past experiences

12. Societal environment includes the following, except:

A. Economic forces C. Political forces
B. Sociocultural forces D. Natural resources

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13. Which among the following is the result of identifying entrepreneurial
opportunities?
A. Creation of entrepreneurial ideas C. Sources of opportunity
B. Opening of entrepreneurial venture D. Entrepreneurial process

14. What entrepreneurial idea will you recognize, if you consider the new discovery
and advancement of technology as source of opportunity?
A. Changes in the environment
B. Technological discovery and advancement
C. Government’s thrust, programs, and policies
D. People’s interest

15. A source of entrepreneurial idea where expertise and skills developed by a

person from its previous work can lead to the opening of a related business
enterprise.
A. Government’s thrust, programs, and policies
B. Past experiences
C. People’s interests
D. Technological discovery and advancement

Additional Activities

Conduct a short interview of any successful entrepreneur in your locality. Ask the
following questions:

• What is the nature of your business?

• Who are your customers?
• What industry are you operating?
• How much was your starting capital?
• How many years has your business been in operation?
• How much manpower was involved from the start of operation until now?

27
Quarter 1 — Module 3
Recognize and Understand the Market
What I Need to Know
You are done in recognizing potential markets in the second module in
Entrepreneurship. You already understand the best product or service that will
meet the market needs. Now, you will continue to learn more about markets, and
recognize and understand the market. In this module we're going to focus on
what's at the heart of every new venture opportunity, the value proposition. A good
value proposition is one that directly links the most important features of the
product or service to the customer's plan. A good value proposition is one that
directly links the most important features of the product or service to the
customer's plan.

In creating a business, the vicinity map is the most important tool that will
identify the key features of the solution and how they help the customer achieve
those benefits or overcome those obstacles. Customers don't buy products. They
don't buy brands and they don't buy technologies. Fundamentally, customers buy
solutions, will continue learn more about markets, and recognize and understand
the market.

This module has two objectives:

1 – Describe the unique selling proposition and value proposition that
differentiate one’s product/service from existing products/services.

2 – Determine who the customers are in terms of:

a. Target market
b. Customer requirement
c. Market size

29
What I Know

Before we begin with this module, answer the questions below. Let’s
see if you already have some ideas about Recognizing Potential Markets. Write

True if the statement is correct and write False if not.

1. Value refers to what the product does for customers that they’re
prepared to pay.

2. The Marketing Concept that was first proposed as a theory to

understand the pattern in successful advertising was called Unique
Selling Proposition.

3. In creating value proposition, entrepreneurs will consider the four (4)

basic elements.

4. Unique selling proposition is specific, often citing numbers or

percentages.

5. Effective selling using advertising and marketing is part of value

proposition.

6. Identifying and rank the uniqueness of the product or services is one

tip for the entrepreneur on how to create an effective unique selling
proposition.

7. The entrepreneurs should not consider the health benefits of the

consumers.

8. Consumers have common wants and needs.

9. Market targeting is a stage in market identification process that aims

to determine the set of buyers with common needs and characteristics.

10. Identifying the unique selling proposition will not require marketing
research.

11. Targeting a specific market does not mean that you are excluding
people who do not fit your criteria.

12. Demographic segmentation is the total market divided according to

geographic location.

30
13. Knowledge and awareness are variables to consider in behavioral
segmentation.

14. Service requirement is an intangible thing or product that cannot be

touched, but can be felt.

15. Market size is like a world globe measurement.

31
Lesson
Recognize and Understand
3 the Market

What’s In

In the previous lesson we learned about the creation of entrepreneurial ideas

that lead to the identification of entrepreneurial opportunities, which in turn results in
the opening of an entrepreneurial venture. There are three processes in creating a
new venture, Entrepreneurial mind frame, Entrepreneurial heart flame, and
Entrepreneurial gut game. In opening a new venture or business, you need to
determine the Unique Selling Proposition (USP) and Value Proposition (VP) of your
product as well as your target market.

What’s New

Activity 1.

Identify whether the following is a Unique Selling Proposition or Value

Proposition of a product/service.
Example: Langhap Sarap Example: Unique Selling Proposition

1. Safeguard
2. Love ko to
3. Supermarket
4. Surf
5. Bukas kahit anong oras

32
Activity 2.

Determine what method of market segmentation (Geographic,

Demographic, Psychological and Behavioral Segmentation) will be used for
the following items.
1. We have Climate Change.
2. Over 60 years of age.
3. Branded (US Levi’s).
4. This product is good for my health.
5. Most People in the community are Roman
Catholic.

What is It

What is Unique Selling Proposition (USP) and Value Proposition

(VP)? This part allows the entrepreneur to prepare himself on how to advertise
and sell his product even if it is similar to others. In this lesson, you will find out
the answers and understand more about the market.

Value Proposition (VP) - is a business or marketing statement that

summarizes why a consumer should buy a company's product or use its service.
This statement is often used to convince a customer to purchase a particular
product or service to add a form of value to their lives. In creating Value
Proposition, entrepreneurs will consider the basic elements:

• Target Customer
• Needs/opportunity
• Name of the product
• Name of the enterprise/company

33
There are many competitors in the market who establish superiority over
other entrepreneurs. Entrepreneurs should think of other alternatives to make their
products better. An important aspect in Value Proposition is that it must be truthful
and that it should establish credibility to the consumers.
Example: Potential value proposition is most common in small businesses of your
locality.
Aling Charing Sari-Sari Store opens only from 6:00 am to 6:00 pm, but Aling
Charing noticed that there are customers who go to a nearby town to look for a
convenience store at around 10:00 pm to 6:00 am. She believes that this is a great
opportunity for her store to operate 24/7. In this example, the proposed value
proposition is: “Charing sari-sari Store, open 24/7”.
The business describes a sari-sari store – a basic retail store. The assurance
from this value proposition is because of the phrase “open 24/7”, Aling Charing’s
sari-sari store opens 24/7, which makes it different from other competitors.

Unique Selling Proposition (USP) – refers to how you sell your product
or services to your customer. You will address the wants and desires of your
customers.
As an entrepreneur, you should think of marketing concepts that persuade
your target customers. You may ask the following questions in doing this: What do
the customers want? What brand does well? What does your competitor sell well?
Some tips for the entrepreneur on how to create an effective unique selling
proposition to the target customers are:
• Identify and rank the uniqueness of the product or services character
• Be very Specific
• Keep it Short and Simple (KISS)

As an entrepreneur, present the best feature of your product or service that

is different from other competitors. Identifying the unique selling proposition
requires marketing research that you will learn from the other modules. In
promoting your products or services, make sure that it is very specific and put
details that emphasize the differentiator against the competitors. Keep it short and
simple and think of a tagline that is easy to remember. Right now, the proposed
unique selling proposition is: “Charing sari-sari store, open 24/7”

34
Readers get confused between value proposition and unique selling
proposition. The two propositions are used to differentiate the products from
competitors. For example, Jollibee is known to have a Filipino taste burger. This
brand has a unique selling point because of its tagline “Langhap Sarap”
Unique Selling Proposition and Value Proposition are two of the most
famous tools used to explain why prospect customers buy each product and
service. Base on each definition, we learn that USP and VP are frameworks of
each business industry. The two propositions are valuable for the entrepreneurs.
Make sure that you're focusing on a solution that is a need, and make sure that
you are targeting a customer segment that's large enough and cares enough about
your solution so that you can build a viable business. We'll talk more about
determining the size of your target market in our next lesson.
After you understand the value proposition and the unique selling
proposition, now it’s time to understand the target market, customers requirement

and market size. As you might expect, the market is right at the center of our word
cloud for this lesson. Understanding your market is critical in building your
business model. There are three factors that will determine your customers.

A. Target Market

Market Targeting is a sage in market identification process that aims to

determine the buyers with common needs and characteristics. Prospect
customers are a market segment that an entrepreneurial venture intends to serve.
In targeting a specific market, it will exclude people if it will not fit your criteria.
Rather, target marketing allows you to focus your marketing money and brand
message on a specific market that is more likely to buy from you than other
markets. Choose a product that is more affordable, efficient, and effective to reach
potential clients and generate business.

35
Commonly used methods for segmenting the markets are follows.:
1. Geographic segmentation – the total market is divided according to geographical
location.
• Variables to consider
a. Climate
b. Dominant ethnic group
c. Culture
d. Density (either rural or urban)

2. Demographic Segmentation – divided based on consumers

• Variables to consider
a. Gender
b. Age
c. Income
d. Occupation
e. Education
f. Religion
g. Ethnic group
h. Family size

3. Psychological Segmentation – divided in terms of how customers think and

believe
• Variables to consider
a. Needs and wants
b. Attitudes
c. Social class
d. Personality traits
e. Knowledge and awareness
f. Brand concept
g. Lifestyle

36
4. Behavioral Segmentation – divided according to customers’ behavior pattern as
they interact with a company.
• Variables to consider
a. Perceptions
b. Knowledge
c. Reaction
d. Benefits
e. Loyalty
f. Responses

B. Customer Requirements

Customer requirements are the specific characteristics that the customers

need from a product or a service.
There can be two types of customer requirements:
1. Service Requirement
2. Output Requirement
Service Requirement:
An intangible thing or product that cannot be touched but the customer can
feel the fulfillment. There are elements in service requirement like on-time delivery,
service with a smile, easy-payment etc. It includes all aspects of how a customer
expects to be treated while purchasing a product and how easy the buying process
goes.

Output Requirements:
Tangible thing or things that can be seen. Characteristic specifications that
a consumer expects to be fulfilled in the product. Costumers will avail services as a
product, then various service requirements can take the form of output
requirements. For example, if the consumer hires a multi cab, then on-time arrival
becomes an output requirement. Customer buys gadgets (phone speaker) the
specification like the loudness and clarity are the output requirements.

37
C. Market Size

The entrepreneur’s most critical task is to calculate the market size, and
the potential value that market has for their start-up business. Market research will
determine the entrepreneurs’ possible customers in one locality.

What is Market Size?

Market size is like a size of the arena where the entrepreneurs will play their
business. It is the approximate number of sellers and buyers in a particular market.
Companies are interested in knowing the market size before launching a new
product or service in the area. In determining the market size, the entrepreneur will
conduct a strategic marketing research from reliable sources using the following
method. The first step is to estimate the potential market – approximate number
of customers that will buy the product or avail your services. The second step is to
estimate the customers who probably dislike to buy your product or avail the
services. The third step is for the entrepreneur to estimate the market share, that
means plotting and calculating of the competitor’s market share to determine the
portion of the new venture. Market size becomes the most important factor if you
ever need to raise funding for your business.

38
What’s More

To apply what you have learned in the previous discussion, answer the
question below. Your answers should be at least 50 words.

1. How would you differentiate Value Proposition and Unique Selling proposition?

What I Have Learned

Fill in the blanks:

Entrepreneurs will take a look at each customer’s demand in the market.

Understanding your market will help reach your goal to compete with bigger
competitors. Building positive relationships with customers require more
understanding in customers’ purchasing motivations and habits.
_ and _ _ basically join hand in
hand to promote its product and services. is a sage in
market identification process that aims to determine the buyers’ common needs
and behavior. There are four (4) methods for segmentation,
,_ , ,
and _ _. There are two types of customer requirements,
the and _ _, the tangible and intangible
things.

Understanding your market will help reach your goal to compete with bigger
competitors.

39
What I Can Do

As an entrepreneur, you are planning to have a business. Using the

following guide questions, answer them so you can now start drafting your
business plan.
1. What product do you want to sell?
2. How will you apply the concept of value proposition and unique selling
proposition?
3. What is the best tagline of your chosen product?
4. Who is your target market?

Assessment

Multiple Choice: Select the best answer and write the letter only on the space
provided.

_1. What is the relationship between unique selling proposition and value
proposition?
a. a framework of each business industry
b. meets your competitors needs wants
c. persuades another to exchange money for a product or service
d. connected with only one particular thing

_2. The following variables are to be considered in behavioral segmentation,

except
a. perception
b. brand concept
c. reaction
d. benefits

_3. What is the function of Value Proposition?

a. used to power up sales
b. used to convince customer to purchase a particular product or services.
c. help customers buying habits
d. provide value to your customers

40
4. Give an example in promotion using Value Proposition and Unique Selling
proposition.
a. with the slogan “Langhap Sarap”
b. ordinary sari-sari store
c. multinational business
d. fruit shake stand

_5. _ will determine possible customers in one locality.

a. Market design c. market research
b. Market strategy d. market size

_6. The term behavioral segmentation refers to:

a. divided based on consumers
b. divided in terms of how customers’ think and believe
c. divided according to geographical location
d. divided according to customers behavior pattern as they interact with a company

_7. What is market size?

a. Tangible things that can be seen
b. Size of arena where the entrepreneur will play their business
c. The most important part to the success of the company
d. Another variation of segmentation marketing.

_8. These are considered favorable indicators for doing business in that particular
location.
a. structure of the segment c. size and growth of the segment
b. capability of the business d. segmentation marketing

_9. This selects the type of customer requirement

a. service requirement c. service responsibility
b. service oriented d. service fulfillment

_10. This refers to how you sell your products or services to your customer.
a. Value proposition c. Selling proposition
b. Unique selling proposition d. Marketing concept
_11. The following are tips for the entrepreneur on how to create an effective
unique selling proposition to the target customers, except
a. Identify and rank the uniqueness of the product or services characteristic
b. Be very specific
c. Keep it short and simple
d. Completeness of proportion

_12. Geographic segmentation refers to:

a. Divided according to geographical location

b. Divided based consumers.
c. Divided in terms for customers think and believe
d. All of the above

41
_13. Service requirement is a/an thing or product that
cannot be touched but customer can feel he fulfillment.
a. Tangible c. Service
b. Intangible d. Output

_14. Tangible things that can be seen refers to

a. Service requirement c. customer requirements
b. Output requirement d. Entrepreneur’s output

_15. What is the first step in conducting strategic marketing?

a. Estimate the potential market
b. Estimate the customers who are probably dislike to buy your product
c. Estimate the market share
d. Estimate business funding.

42
Additional Activities

Give at least 5 products being advertised or promoted on television.

Evaluate each one according to its USP, VP and method of segmentation
used, customer requirements, and who are the customers.

Product Method of Customer Target

Name USP VP Segmentation Requirements customers
Ex. Langhap Filipino Service &
Jollibee Sarap taste Psychological Output All people
burger
1.

2.

3.

4.

5.

Kudos! You have finished Module 3. Get to know more

about Market Research in Module 4.

43
Quarter 1 — Module 4
Market Research
What I Need to Know

Firms and other businesses need to understand their service offerings

and their customers to ensure that their services will be adopted as solutions to
consumer needs. In order for the firms to recognize the needs of the market or
the customers, they need to conduct market research.

In science, market research is similar to a research paper in which the

entrepreneur will act as researcher who will need to investigate before making
a conclusion. Entrepreneurs will need to do research before starting or
establishing a business in a certain area in order to reduce the chances of
failure.

In this module, students are expected to:

1. Explain what market research is

2. Understand the meaning of data gathering
3. Identify the different data gathering techniques
4. Appreciate the importance of market research

What I Know
Before starting with this module, let us see what you already know about
market research and data gathering techniques. Answer the questions below.
Encircle the letter of your choice.

1. It is the most common way to gather primary data with the use of questionnaires
or interview schedule.
A. Interview C. Survey
B. Focus Group Discussion D. Data Gathering

2. It is the traditional method of data collection which is normally done personally

with the respondents.
A. Personal Interview C. Survey
B. Focus Group Discussion D. Data gathering

45
3. A data gathering technique where it can be moderated to group interviews and
brainstorming sessions that provide information on user’s needs and behaviors.
A. Personal Interview
B. Focus Group Discussion
C. Survey
D. Data Gathering

4. It refers to information gathered directly from the respondents who answered a

set of questions.
A. Primary Research
B. Secondary Research
C. Survey
D. Data Gathering

5. A data gathering technique where it can be done via direct mail, over the phone,
internet or e-mail.
A. Data Gathering
B. Survey
C. Focus Group Discussion
D. Interview

6. It refers to the process of gathering, analyzing and interpreting the information

about the product or the services to be offered for sale in the market.

A. Primary Research
B. Secondary Research
C. Data Gathering
D. Market Research

7 – 9. In your own opinion, what is Market Research?

10 – 15. Give at least three data gathering techniques and explain each.

46
Lesson
Market Research
4

What’s In
In the previous lesson, you learned the following:

Unique selling proposition (USP) which refers to how you sell your
product or services to your customers and how you will address the wants and
desires of your customers.

Some tips for the entrepreneur on how to create an effective unique

selling proposition to the target customers are:

• Identify and rank the uniqueness of the product or services character

• Be Very Specific

• Keep it short and simple (KISS)

What’s New

You just started an “internet shop” near your school. Conduct a simple
market research to get feedback about your business.

What Is It
Market Research or Marketing Research Process can be defined as
the process of gathering, analyzing and interpreting the information about the
products or the services to be offered for sale to the potential consumers in the
market (De Guzman, 2018, p. 25)

47
DATA COLLECTION is the most valuable tool in any type of research
study. Inaccurate data collection may cause mistakes and ultimately lead to
invalid results. (Edralin, 2016, p. 80)

TIPS in COLLECTING DATA

• Organize collected data as soon as it is available
• Know what message you want to get across and then collect data that is
relevant to the message
• Collect more data
• Create more data
• Take note of interesting or significant data

What’s More
In this lesson, we will consider the three different data collection
techniques – SURVEY (Questionnaire), INTERVIEW and FOCUS GROUP
DISCUSSION – and evaluate their suitability under different circumstances

SURVEYS are the most common way to gather primary research with
the use of questionnaires or interview schedule. These can be done via direct
mail, over the phone, internet (e.g. Google) or email, face-to-face or on the Web
(e.g. Skype or Viber).

When designing or constructing your own research questionnaire,

remember the following guidelines. (Edralin, 2016)

• Keep it as simple as possible

• Make sure it is clearly appealing and easy to read
• Cluster or block related questions
• Move from complex questions to more specific questions
• Make sure questions are concise and easily understood
• Avoid questions that are difficult to answer
• Make sure response scales used are consistent with categories that are
mutually exclusive

48
INTERVIEW is one of the most reliable and credible ways of getting
relevant information from target customers. It is typically done in person
between the researcher/entrepreneur and a respondent where the researcher
asks pertinent questions that will give significant pieces of information about the
problem that he will solve. The interview is also helpful even when the business
has already started because the customers’ feedback provides the
entrepreneur a glimpse of what the customers think about the business.

Interviews normally last from 15 to 40 minutes, but they can last longer,
depending on the participants’ interest in the topic.

In a structured interview, the researcher asks a standard set of questions

and nothing more. (Leedy & Ormrod, 2001, pp.38-39)

Personal interviews are the traditional method of conducting an

interview. It allows the researcher to establish relationship with potential
participants and therefore gain their cooperation. It generates highest response
rates in survey research. They also allow the researcher to clarify indefinite
answers and when necessary, seek follow-up information. (Leedy & Ormrod,
2001, pp.39)

• Telephone interviews are less expensive and less time-consuming, but the
disadvantages are that the response rate is not as high as the face-to-face
interview, but considerably higher than the mailed questionnaire.

FOCUS GROUP DISCUSSION (FGD) -

is an excellent method for generating and
screening ideas and concepts. It can be
moderated group interviews and
brainstorming sessions that provide
information on user’s needs and
behaviors.

49
The following are considerations in the use of focus group discussions
in market research:

• The length of the session is between 90 and 120 minutes.

• Conduct focus groups discussion with 8 to 10 participants per group.
• Assign an expert moderator / facilitator who can manage group dynamics.
• Use a semi-structured or open-format discussion
• Strive for consistency in the group’s composition (for example, it may not
be advisable to have business customers and retail customers in the same
focus group, their needs are very different) (Leedy & Ormrod, 2001, pp.40-
41)

GUIDED PRACTICE / ACTIVITY:

Conduct a survey among 15 high school students in our school about “Milk Tea”.
Use the survey form below:

SURVEY FORM

Name of Respondent (optional):

Age Gender:  Male  Female Grade Level

What are your reasons for buying the product?

Where do you buy the product?

Is it available when you need it?  Yes Sometimes  No

What do you use as a substitute if it is not available?

Is the price affordable for you?  Yes  No

50
What I Have Learned

Identify the following. Write your answer on the space provided.

1. It is information gathered directly from the respondents who answered a set of

questions.
2. It is the traditional method of data collection which is normally done in person
with the respondents. _
3. It obtains information on general attitudes, and understands the circumstances
under which customers might require your product or services and understand
their desired outcomes.
4. It is one of the most reliable and credible ways of getting relevant information
from target customers. _
5. It is the most valuable tool in any type of research study. _ _
6. A data gathering technique where it can be done via direct mail, over the phone,
internet or e-mail.
7. They also allow the researcher to clarify indefinite answers and when
necessary, seek follow-up information.
8. It is an excellent method for generating and screening ideas and concepts.
_
9. It can be moderated group interviews and brainstorming sessions that provide
information on user’s needs and behaviors. _
10. It normally lasts from 15 - 40 minutes, but they can last longer, depending on
the participants’ interest in the topic._
11. It is type of interview which is less expensive and less time-consuming

Give at least one guideline or consideration in the use of the following

data gathering techniques in market research:
12. Surveys _
13. Focus Group Discussion _ _
14. Interviews

51
What I Can Do
Conduct a Focus Group Discussion (FGD) among five of your friends in
your neighborhood who are interested to have their own business in the future.
Ask them what they have observed in the community or in other places that
they have gone to so that they may have prospects on what are the products
being bought or patronized by the customers which are not yet offered by other
entrepreneurs in your locality. List down 3 possible products to be introduced
for the target market.

The learners’ output will be evaluated according to the following criteria:

Creativity - 20 points
Content/ Accuracy - 20 points
Timeliness - 10 points
Total 50 points

52
Assessment

Test I. Answer the questions below. Encircle the letter of your choice.
1. It is the process of gathering, analyzing and interpreting the information about
the product or the services to be offered for sale in the market, the market and
about past, present and any potential consumers for the products.
A. Data Gathering
B. Primary Research
C. Secondary Research
D. Market Research

2. A data gathering technique where it can be moderated to group interviews and

brainstorming sessions that provide information on user’s needs and behaviors.
A. Personal Interview
B. Focus Group Discussion
C. Survey
D. Data Gathering

3. A data gathering technique where it can be done via direct mail, over the phone,
internet or e-mail.
A. Data Gathering
B. Survey
C. Focus Group Discussion
D. Personal Interview

4. It is one of the most reliable and credible ways of getting relevant information
from target customers
A. Primary Research
B. Secondary Research
C. Interview
D. Data Gathering

5. It is the most common way to gather data with the use of questionnaires or
interview schedule.
A. Interview
B. Focus Group Discussion
C. Survey
D. Data Gathering

53
6. It is the traditional method of data collection which is normally done in person
with the respondents.
A. Personal Interview
B. Focus Group Discussion
C. Survey
D. Data gathering

7. It is an excellent method for generating and screening ideas and concepts

A. Data Gathering
B. Survey
C. Focus Group Discussion
D. Personal Interview

Test II. Explain the following briefly but in a concise manner.

1. What is Market Research? (3 pts.)

2. Enumerate and discuss the three data gathering techniques (5 pts.)

54
Additional Activities

You are to open a “Lemon Juice and Shake” business in your

neighborhood. Conduct a simple market research to know if it is feasible or not.
You may send your research output with pictures thru e-mail or messenger.

The learners’ output will be evaluated according to the following criteria::

Creativity - 20 points
Content / Information - 20 points
Timeliness - 10 points
Total 50 points

55
Quarter 1 — Module 5
The Marketing Mix (7P’s) in Relation to
Business Opportunity
What I Need to Know

Congratulations! You have finished many assigned activities in the previous

modules. Welcome to Module Five (5). This module introduces the Marketing Mix,
more popularly referred to as the 7P’s of Marketing. It is a set of controllable and
interrelated variables composed of product, place, price and promotions that a
company assembles to satisfy a target group better than its competitor. Marketing Mix
strategy is selecting and applying the best potential means to achieve the
organization’s vision and gain competitive edge.

This module provides context and foundational knowledge. It is divided into two
lessons.
Lesson 5.1 The Marketing Mix (7P’s) in Relation to the Business Opportunity
CS_EP11/12ENTREP-0h-j-10
Lesson 5. 2 Developing a Brand Name
CS_EP11/12ENTREP-0h-j-11

After reading this module, you should be able to:

1. describe the Concept of Marketing Mix;

2. identify the seven P’s in the Marketing Mix;
3. appreciate the importance of Marketing Mix and Branding; and
4. developed a Brand Name.

You have started discovering a new world – the world of business. Who knows,
one day you may grow into one of the successful entrepreneurs in our country that our
country can be proud of. However, you have to:

• Read the texts carefully

• Follow the directions and/or instructions in the activities and exercises diligently
• Answer all the given test and exercises

57
What I Know

Before you start studying this module, take the following test to find out how much
you already know about this topic. Let’s check your prior knowledge, skills, and
understanding of basic concepts related to the seven P’s in the Marketing Mix and
Branding. This will guide you in understanding the concept.
Now, are you ready? Before proceeding, let’s see what you already know. This
test is particularly prepared to determine your prior knowledge of the lessons you are
about to encounter.

Multiple Choice
Direction: Encircle the letter of the best answer. Write your answers in your activity
notebook.
1) It is a set of controllable and interrelated variables composed of product, place,
price and promotions that a company assembles to satisfy a target group better
than its competitor.
a. Price b. Marketing Mix c. Product d. Packaging
2) The amount that a customer pays for to enjoy it.
a. Price b. Marketing Mix c. Product d. Packaging
3) An item that is produced to satisfy the needs of a certain group of people.
a. Price b. Marketing Mix c. Product d. Packaging
4) It is a tangible product. Its example includes tires, MP3 players, clothing and etc.
a. Branding b. Positioning c. Goods d. Place
5) It can be intangible or tangible as it can be in the form of services or goods.
a. Price b. Marketing Mix c. Product d. Packaging
6) The way your product or service appears from the outside.
a. Price b. Marketing Mix c. Product d. Packaging
7) A marketing model that modifies the 4Ps model.
a. Packaging b. 7 P’s Model c. Marketing Mix d. People
8) Responsible for every element of your sales, marketing strategies, and activities.
a. Packaging b. 7 P’s Model c. Marketing Mix d. People
9) This refers to how a business creates awareness in the market.
a. Place b. Brand Name c. Services d. Promotion
10) It is intangible. Its example includes hair salons and accounting firms.
a.Place b. Brand Name c. Services d. Promotion
11) This is the ultimate marketing strategy.
a. 7 P’s Model b. Marketing Mix c. People d. Branding
12) This is where your product or service is actually sold.
a. Place b. Brand Name c. Services d. Promotion
13) The place occupied by products in the heart and minds of the consumers.
a. Branding b. Positioning c. Goods d. Place
14) A name, symbol, or other feature that distinguishes a seller's goods or services in
the marketplace.
a. Brand Name b. Positioning c. Branding d. Place
15) A powerful and sustainable high-level marketing strategy used to create or
influence a brand.
a. Brand Name b. Positioning c. Branding d. Place

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Lesson
The Marketing Mix (7P’s) in Relation to
5.1 the Business Opportunity

What’s In

In the previous lesson, you already learned about data collection. It is an

important factor of any research study. The three (3) ways of collecting data are
Survey, Interview, and Focus Group Discussion (FGD). This will help entrepreneurs in
gathering information about their target market. But, your entrepreneurial work,
however, does not simply end there. You must design a certain marketing program or
strategy that will convey the value of your product to the target customers. In the
parlance of entrepreneurship, this program is theoretically called marketing mix.

What’s New
Find the P’s
Directions: Think of words or terms related to the topic that starts with letter “P”
and find the words in the grid horizontally, vertically, or diagonally. Write the Words or
Terms on the space provided and write something about the term using your own
words. Write your answers in your activity notebook.

1.
2.
3.
4.
5.
6.
7.

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What is It
Whatever you sell or offer you must outline your marketing mix. Marketing mix
has been around as early as trade existed and that is quite long already. The only
difference is that today everything is well outlined and keeps evolving even further. To
get to the point, marketing mix is a business mechanism used for effective marketing
of the products. There is no hesitation that anyone would benefit from a powerful 7Ps.
Marketing Mix is a set of controllable and connected variables that a company gathers
to satisfy a customer better than its competitor. It is also known as the “Ps” in
marketing. Originally, there were only 4Ps but the model has been continually modified
until it became 7P’s. The original 4 P’s stands for product, place, price and promotion.
Eventually, three elements have been added, namely: people, packaging and
positioning to comprise the 7 P’s.

The 7 P’s of Marketing Mix

There are several important frameworks which you can utilize for the purpose of
marketing your product and services. A very crucial structure among these is the “7
P’s of Marketing. The framework of “7 Ps of marketing” includes product, place, price,
promotion people, packaging and positioning. Realizing these P’s in the most ideal
manner can turn out to be very profitable, however, you should totally see each
description of the 7 P’s first.

1. PRODUCT
The first P in the Marketing Mix is the Product. Marketing strategy typically
starts with the product. Marketers can’t plan a distribution system or set a price if they
don’t know exactly what the product will be offered to the market.

Product refers to any goods or services that is produced to meet the consumers’
wants, tastes and preferences. Examples of goods include tires, MP3 players, clothing
and etc. Goods can be categorized into business goods or consumer goods. A buyer
of consumer goods may not have thorough knowledge of the goods he buys and uses.
Examples of services include hair salons and accounting firms. Services can be
divided into consumer services, such as hair styling or professional services, such as
engineering and accounting.

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GOODS
A. CONSUMER GOODS
B.BUSINESS GOODS

PRODUCT

SERVICES
• A. CONSUMER SERVICES
• LAWN CARE
• HAIR STYLING
• B. PROFESSIONAL
SERVICES
• ENGINEERING
• ACCOUNTING
• CONSULTANCY

The two (2) types of products

There are 2 types of goods. Consumer Goods and Business Goods. The table
below shows the comparison between the 2 types of goods.

Consumer Goods Business Goods

The demand for consumer goods is a The demand for business goods is a
'direct demand'. 'derived demand'. It is derived from the
demand for consumer goods, which are
made using the business goods.
The number of buyers is great. Business goods have only limited number
of buyers.
The buyers are found scattered in The buyers are found to be concentrating
different parts of the country / world. in certain regions only.
Each purchase will generally be of Each purchase involves a very high
small value. amount (in money terms).
Buying is much influenced by Buying cannot be influenced by emotions.
emotions.

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After-sale service is important in the After-sale service is of paramount
case of consumer durables. importance in the case of all business
goods.
There are a number of middlemen in The manufacturers of industrial goods
the market. supply directly to their customers.
A buyer of consumer goods may not A buyer of industrial goods must have
have thorough knowledge of the complete knowledge of the goods he buys
goods he buys and uses. and uses.
The reputation of the seller or The reputation of the manufacturer is
manufacturer may not always be always important in buying industrial
given importance in buying consumer goods.
goods.
Inducements to the buyers in the Such inducements may not be common in
form of cash discounts, free gifts, etc. the marketing of industrial goods.
are made always by those marketing
consumer goods.
The market for consumer goods is The market for industrial goods is affected
affected by fashion and style by technological changes.
changes.

2. PLACE
Place is the second P in the Marketing Mix. Place represents the location
where the buyer and seller exchange goods or services. It is also called as the
distribution channel. It can include any physical store as well as virtual stores or online
shops on the Internet.

It is one thing having a great product, sold at an attractive price. But what if:
• Customers are not near a retailer that is selling the product?
• A competing product is stocked by a much wider range of outlets?
• A competitor is winning because it has a team of trained distributors or sales
agents who are out there meeting customers and closing the sale?

Place matters for a business of any size. It is a crucial part of the marketing mix.
The main function of a distribution channel is to provide a link between production and
consumption.
STAGES OF DISTRIBUTION CHANNEL

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Channel 1 contains two stages between producer and consumer - a wholesaler and a
retailer. A wholesaler typically buys and stores large quantities of several producers'
goods and then breaks into bulk deliveries to supply retailers with smaller quantities.
For small retailers with limited order quantities, the use of wholesalers makes
economic sense.
Channel 2 contains one intermediary. In consumer markets, this is typically a retailer.
A retailer is a company that buys products from a manufacturer or wholesaler and sells
them to end users or customers. In a sense, a retailer is an intermediary or middleman
that customers use to get products from the manufacturers.
Channel 3 is called a "direct-marketing" channel, since it has no intermediary levels.
In this case the manufacturer sells directly to customers.
3. PRICE
The third P in the Marketing Mix is price. The price is a serious component of the
marketing mix. What do you think is the meaning of Price?
In the narrowest sense, price is the value of money in exchange for a product or
service. Generally speaking, the price is the amount or value that a customer gives up
to enjoy the benefits of having or using a product or service. Thus, customers
exchange a certain value for having or using the product – a value we call price. In
commerce, price is determined by what (1) a buyer is willing to pay, (2) a seller is
willing to accept, and (3) the competition is allowing to be charged. With product,
promotion, and place of marketing mix, it is one of the business variables over which
organizations can exercise some degree of control. One example of a pricing strategy
is the penetration pricing. It is when the price charged for products and services is set
artificially low in order to gain market share. Once this is attained, the price can be
higher than before. For example, if you are going to open a Beauty Salon, you need
to set your prices lower than those of your competitors so that you can penetrate the
market. If you already have a good number of market share then you can slowly
increase your price.
There are several factors that affect a small business’ revenue potential. One of
the most important is the pricing strategy utilized by you as the owner of the business.
A right pricing strategy helps you define the particular price at which you can maximize
profits on sales of your product or service. You need to consider a wide range of factors
when setting prices of your offerings. The different pricing strategies with its definition
can be found in the table below.

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The Different Pricing Strategies and Its Definition

Pricing Definition
Strategies

Penetration The price charged for products and services is set artificially low in order
Pricing to gain market share. Once this is achieved, the price is increased.
Skimming A company charges a higher price then slowly lowers the price to make
Pricing the product available to a wider market because it has a considerable
competitive advantage. However, the advantage tends not to be
sustainable. The high price attracts new competitors into the market, and
the price inevitably falls due to increased supply.
Competition A pricing method in which a seller uses prices of competing products as a
Pricing benchmark instead of considering own costs or the customer demand. In
reality a firm has three options and these are to price lower, price the same
or price higher than competitors
Product Line The practice of reviewing and setting prices for multiple products that a
Pricing company offers in coordination with one another. Rather than looking at
each product separately and setting its price, product-line pricing
strategies aim to maximize the sales of different products by creating more
complementary, rather than competitive, products. If you offer more than
one product or service, consider the impact that one product's or service's
price will have on the others.
Bundle The act of placing several products or services together in a single
Pricing package and selling for a lower price than would be charged if the items
were sold separately.
Premium Setting the price of a product higher than similar products. The goal is to
Pricing create the perception that the products must have a higher value than
competing products because the prices are higher.
Psychological Psychological pricing is the practice of setting prices slightly lower than
Pricing rounded numbers, in the belief that customers do not round up these
prices, and so will treat them as lower prices than they really are. This
practice is based on the belief that customers tend to process a price from
the left-most digit to the right, and so will tend to ignore the last few digits
of a price.
Optional The company earns more through cross-selling products along with a
Pricing basic core product. The main product does not have many features (and
is priced low) which can be enhanced through optional or accessory
products which are sold at premium by the same company.
Cost Plus Cost plus pricing involves adding a markup to the cost of goods and
Pricing services to arrive at a selling price. Under this approach, you add together
the direct material cost, direct labor cost, and overhead costs for a
product, and add to it a markup percentage in order to derive the price of
the product.
Cost Based A pricing method in which a fixed sum or a percentage of the total cost is
Pricing added (as income or profit) to the cost of the product to arrive at its selling
price.
Value Based A price-setting strategy where prices are set primarily on consumers'
Pricing perceived value of the product or service.

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4. PROMOTION

Promotion is the fourth P in the Marketing Mix. Promotion refers to the complete
set of activities, which communicate the product, brand or service to the user. The idea
is to create an awareness, attract and induce the consumers to buy the product, in
preference over others. The following are the most common medium in promoting a
product and this is called promotional mix.

PROMOTIONAL MIX

1. ADVERTISING

• Radio
Advertising by means of radio gives the advantage of selecting the territory and
audience to which the message is to be directed. It is also cheaper than TV advertising.

• Television
This is the latest and the fast-developing medium of advertising and is getting
increased popularity these days. It is more effective as compared to radio as it has the
advantages of sound and sight. On account of pictorial presentation, it is more effective
and impressive and leaves a lasting impression on the mind of the viewer.

• Print
The print media carry their messages entirely through the visual mode. These
media consist of newspapers, magazines and direct mail.

• Electronic
You can also advertise electronically through your company website and provide
important and pertinent information to clients and customers. You can protect some
parts of your website through passwords and give access to member customers. You
can also send advertisements via direct e-mail as part of your promotional strategy.

• Word of Mouth
Word-of-mouth advertising is important for every business, as each happy
customer can steer dozens of new ones your way. And it's one of the most credible
forms of advertising because a person puts their reputation on the line every time they
make a recommendation and that person has nothing to gain but the appreciation of
those who are listening.

• Generic
The promotion of a particular commodity is without reference to a specific
producer, brand name or manufacturer. Producers join together to expand total
demand for the commodity, thereby helping their own sales. These activities are often
self-funded through assessments on marketing called check-off programs.

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2. PUBLIC RELATIONS OR PR
In public relations, the article that features your company is not paid for. The
reporter, whether broadcast or print, writes about or films your company as a result of
information he or she received and researched.

Many people use the term PR and advertising interchangeably, PR involves

sharing information with the public using platforms that do not require a payment, such
as social media or through press releases shared with magazines and newspapers.
PR professionals package information and disseminate it in the hopes that it will be
organically shared. The goal of public relations is to shape public perception of a
business, presenting a positive image through various strategies to its various
constituents.

3. PERSONAL SELLING
Personal selling occurs when an individual salesperson sells a product, service
or solution to a client. Salespeople match the benefits of their offering to the specific
needs of a client. Today, personal selling involves the development of longstanding
client relationships.

Personal selling involves a selling process that is summarized in the following

Five Stage Personal Selling Process. The five stages are:
• Prospecting
• Making first contact
• The sales call
• Objection handling
• Closing the sale

4. SALES PROMOTIONS
Sales promotion is any initiative undertaken by an organization to promote an
increase in sales, usage or trial of a product or service (i.e., initiatives that are not
covered by the other elements of the marketing communications or promotions mix).

Sales Promotion Technique

• Free Gifts
There are many ways to utilize this particular sales promotion technique. A newly
opened store, for example, may offer the first 10 customers free items worth 100
pesos.
• Free Samples
Providing free samples is a technique used to introduce new products to the
marketplace. Samples give the consumer a chance to see how well they like a product
or try something they otherwise would not normally buy.
• Free Trial
A free trial is a way for a consumer to try a new product while eliminating risk. It
may be used when a product is unique to the marketplace.

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• Customer Contests
Contests offer the customer a chance to win prizes like cash or store
merchandise.
• Special Pricing
Special pricing is used to offer consumers a lower price for a period of time or to
purchase in multiple quantities. For example, a retailer may offer a product that
normally costs 35 pesos at a price of 3-for-100-pesos during the promotional period.

5. DIRECT MARKETING
Direct marketing is a promotional method that involves presenting information
about your company, product, or service to your target customer without the use of an
advertising middleman. It is a targeted form of marketing that presents information of
potential interest to a consumer that has been determined to be a likely buyer.

Forms of Direct Marketing

Brochure Catalogs Fliers Newsletters Post cards

Coupons Email Phone calls Text messages

5. PEOPLE

The fifth P in the Marketing mix is People. Your team, the staff that makes it
happen for you, your audience, and your advertisers are the people in marketing. This
consist of each person who is involved in the product or service whether directly or
indirectly.
People are the ultimate marketing strategy. They sell and push the product.
People are one of the most important elements of the marketing mix today. This is
because of the remarkable rise of the services industry. Products are being sold
through retail channels today. If the retail channels are not handled with the right
people, the product will not be sold. Services must be first class nowadays. The people
rendering the service must be competent and skilled enough so that that the clients
will patronize your service. The marketing efforts of people are to create customer
awareness, to arouse customer interest, to educate customers, to close the sale and
to deliver the product.
Therefore, the right people are essential in marketing mix in the current marketing
scenario.

6. PACKAGING

Packaging is the sixth P in the Marketing Mix. Packaging is a silent hero in the
marketing world. Packaging refers to the outside appearance of a product and how it
is presented to the customers. The best packaging should be attractive enough and
cost efficient for the customers. Packaging is highly functional. It is for protection,
containment, information, utility of use and promotion.

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Five Basic Functions of Packaging

1) Protection:
One of the major functions of packaging is to provide for the effects of time and
environment for the natural and manufactured products. The protection function can
be divided into some classes.

A. Natural deterioration:
It is caused by the interaction of products with water, gases and fumes, microbiologic
organisms like bacteria, yeasts and molds, heat, cold, dryness, contaminants and
insects and rodents.

B. Physical protection:
The packaging is also used for physical protection, which include improving shock
protection, internal product protection and reducing shock damage caused from
vibration, snagging, friction and impact.

C. Safety:
A special kind of protective packaging is required for products that are deemed harmful
to those who transport them or use them. These products include extremely
inflammable gas and liquid, radioactive elements, toxic materials etc. The packaging
should also be done so that children could not easily use or dispose them.

D. Waste reduction:
Packaging also serves to reduce the amount of waste especially in case of food
distribution.

2) Containment:
This involves merging of unit loads for shipping. It starts with spots of adhesives on
the individual shippers that stick them together, straps of steel and plastic, entire
coverings of shrinkable or stretchable plastic films and paper or corrugated wraps that
surround an entire pallet of product.

There are some special bulk boxes or pallet bins made from unusually strong
corrugated board or fabricated form plastics or metal, the method of which depends
on the type and weight of product and its protective needs. The cargo containers made
of aluminum used to hold many pallet loads of goods can be transferred to or from
ships, trains and flatbed trucks by giant cranes.
3) Information:
The packaging conveys necessary information to the consumers. The common
information that packaging provides include general features of the product,
ingredients, net weight of the contents, name and address of the manufacturers,
maximum retail price (MRP).

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Packaging of medicine and some food products is required to provide information on
methods of preparations, recipes and serving ideas, nutritional benefits, and date of
manufacturing, date of expiry, warning messages and cautionary information.
Sometimes, the color of the packaging itself provides some information.

4) Utility of use:
The convenience packaging has been devised for foods, household chemicals, drugs,
adhesives, paints, cosmetics, paper goods and a host of other products. This type of
packaging includes dispensing devices, prepackaged hot metals, and disposable
medical packaging.

5) Promotion:
Companies use attractive colors, logos, symbols and captions to promote the product
that can influence customer purchase decision.

Packaging Decisions:

i. Packaging concept:
This defines what the package should be or do for the particular product in terms of
size, shape, materials, color, text, and brand mark and tamperproof ability

ii. Engineering tests:

This will ensure that the package stands up under normal conditions

iii. Visual tests:

This is to ensure that the script is legible and colors are harmonious

iv. Dealer tests:

This is to ensure that the dealers find the packages attractive and easy to handle

v. Consumer tests:
This is to ensure favorable consumer response

7. POSITIONING

Finally, the seventh P in the Marketing Mix is Positioning. When a company

presents a product or service in a way that is different from the competitors, they are
said to be “positioning” it. Positioning refers to a process used by marketers to create
an image in the minds of a target market.
Solid positioning will allow a single product to attract different customers for not
the same reasons. For example, two people are interested in buying a phone; one
wants a phone that is cheaper in price and fashionable while the other buyer is looking
for a phone that is durable and has longer battery life and yet they buy the same exact
phone.

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There are three basic concepts for positioning. These are Functional Positions,
Symbolic Positions and Experiential Positions. Functional Positions deal with solving
a problem, providing benefits and getting a favorable perception from investors,
stockholders and consumers. Symbolic Positions deal with self-image enhancement,
ego identification, belongingness, social meaningfulness and affective fulfilment and
Experiential Positions deal with providing sensory or cognitive stimulation.

Steps of the Positioning Process

Communicate
and deliver on
Define your
positioning
the positioning
Choose strategy strategy
competitive
advantages
Identify your that define
competitive your market
Confirm your advantages “niche”
understanding
of market
dynamics

Step 1: Confirm Your Understanding of Market Dynamics

At the start of the positioning process, you need a firm understanding of your target
market and answers to the following questions:

In which product, service, or market category (also called the “frame of reference”) do
you plan to use this positioning?
Which target segment is your focus for the positioning you are developing?
What factors do these buyers evaluate when they make a purchasing decision?
How do these buyers view your competitors in the category?

If you don’t have answers to these questions, you should consider conducting formal
or informal marketing research to reach a better understanding of your target market
and the market dynamics around it.
Step 2: Identify Your Competitive Advantages

A competitive advantage is some trait, quality, or capability that allows you to

outperform the competition. It gives your product, service, or brand an advantage over
others in purchasing decisions. Competitive advantage may come from and or all of
the following:

Price: Something in your production process or supply chain may make it possible for
you to provide comparable value at a lower cost than competitors.

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Features: You may provide tangible or intangible features that your competitors do
not: for example, more colors, better taste, a more elegant design, quicker delivery,
personalized service, etc.

Benefits: You may provide unique benefits to customers that your competitors cannot
match. Benefits are intangible strengths or outcomes your customer gets when they
use your offering. For example, time savings, convenience, increased control,
enjoyment, relaxation, more choices, feeling better about oneself, being more
attractive, etc.
Create a list of the things that make you different from competitors in positive ways.
Then identify which of these factors are also competitive advantages: the influential
factors that help you perform better in the marketplace and cause customers to choose
your product, service, or brand over other options.

Step 3: Choose Competitive Advantages That Define Your Niche

Your list of competitive advantages represents a set of possible positioning strategies

you could pursue for your product, service, or brand. The next step is to examine how
these factors fit into customer perceptions of your broader competitive set. Your goal
is to pick a positioning approach that gives you a unique and valued position in the
market that competitors are not addressing.

How to Create an Effective Market Positioning Strategy?

Create a positioning statement that will serve to identify your business and how you
want the brand to be perceived by consumers.

1. Determine company uniqueness by comparing to competitors

Compare and contrast differences between your company and competitors to
identify opportunities. Focus on your strengths and how it can exploit these
opportunities.
2. Identify current market position
Identify your existing market position and how the new positioning will be
beneficial in setting you apart from competitors.

3. Competitor positioning analysis

Identify the conditions of the marketplace and the amount of influence each
competitor can place on each other.

4. Develop a positioning strategy

Through the preceding steps, you should achieve an understanding of what your
company is, how your company is different from competitors, the conditions of the
marketplace, opportunities in the marketplace, and how your company can position
itself.

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Lesson
Developing a Brand Name
5.2

We are now in the second lesson of this module. After studying and
understanding the framework of the Marketing Mix which is the 7 P’s of Marketing, you
are now ready to develop your Brand Name.
What comes to your mind when you hear the word “coffee”? How about “milk”?
When you are asked to name a “toothpaste” or a “soft drinks, what will you think and
say first?
Now as a future entrepreneur, how do you describe the sales of your product
being displayed on the shelves of various malls and groceries beside the product with
a brand name? Do you think the consumers will notice or remember it? Branding will
ultimately reside(s) in the mind of every consumers, thus, it plays a significant role in
every business.
Brand Name is a name, symbol, or other feature that distinguishes a seller's
goods or services in the marketplace. Your brand is one of your greatest assets
because your brand is your customers' over-all experience of your business. Brand
strategy is a long-term design for the development of a popular brand in order to
achieve the goals and objectives. A well-defined brand strategy shakes all parts of a

business and is directly linked to customer needs, wants, emotions, and competitive
surroundings.
Experts believe that a good brand can result in better loyalty for its customers, a
better corporate image and a more relevant identity.

As more customers continue to differentiate between emotional and experienced

companies, a brand may be the first step forward in your competition instead of price
points and product features. The question is, can you build a brand which truly talks to
your audience?

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Branding is a powerful and sustainable high-level marketing strategy used to
create or influence a brand. Branding as a strategy to distinguish products and
companies and to build economic value to both customers and to brand owners, is
described by Pickton and Broderick in 2001.

Commonly Used Branding Strategies

1) Purpose
"Every brand makes a promise. But in a market in which customer confidence is
little and budgetary observance is great, it’s not just making a promise that separates
one brand from another, but having a significant purpose," (Allen Adamson).
How can you define your business purpose? According to Business Strategy
Insider, purpose can be viewed in two ways:

a. Functional. This way focuses on the assessments of success in terms of fast

and profitable reasons. For example, the purpose of the business is to make
money.
b. Intentional. This way focuses on fulfillment as it relates to the capability to
generate money and do well in the world.
2) Consistency
The significance of consistency is to avoid things that don’t relate to or improve
your brand. Consistency aids to brand recognition, which fuels customer loyalty.

3) Emotion
There should be an emotional voice, whispering "Buy me". This means you allow
the customers to have the chance to feel that they are part of your brand.
You should find ways to connect more deeply and emotionally with your
customers. Make them feel part of the family and use emotion to build relationships
and promote brand loyalty.

4) Flexibility
Marketers should remain flexible too in this rapidly changing world. Consistency
targets at setting the standard for your brand, flexibility allows you to adjust and
differentiate your approach from your competition.

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According to Kevin Budelmann, "Effective identity programs require sufficient
consistency to be identifiable, but sufficient variation to keep things fresh and human,"
so if your old tactics don't work anymore, don't be afraid to change. It doesn’t mean it
worked in the past it may still work now.

5) Employee Involvement
It is equally important for your employees to be well versed in how they
communicate with customers and represent the brand of your product.

6) Loyalty
Loyalty is an important part of brand strategy. At the end of the day, the emphasis
on a positive relationship between you and your existing customers sets the tone for
what potential customers can expect from doing business with you.

7) Competitive Awareness
Do not be frightened of competition. Take it as a challenge to improve your
branding strategy and craft a better value in your brand.

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What’s More

A. Draw to Survive

Direction: Create a Concept Map for the 7 P’s of Marketing Mix. Create your Concept
Map in your activity notebook.

Rubrics for Scoring

Score Description
15 The illustration of the concept map is clear and complete.
12 The illustration of the concept map is complete.
9 The illustration of the concept map is lacking 1.
6 The illustration of the concept map is lacking 2
3 The illustration of the concept map is lacking 3.

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B. My Imaginary Product

Draw your product and give it a name. Follow the task guide bellow. Draw it in your
activity notebook. Then, write a short explanation by describing the product and why
you come up with its name.

Who are your

Target Market? What is your
Suitable Name for
Product ?
(age, gender, the Product
(description)
income)

Suitable Color for Suitable shape for Suitable Material for

the Packaging the Packaging the Packaging

Justify your Brand

Sketch the Product, Create a Brand
Name using the
sketch the logo Name
Branding Strategies

Draw your product in your Activity Notebook.

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Here are some useful phrases that may help you with your tasks and explanations:

My Target Market is/are _,

that is why I choose this product.

I would like to introduce my new product _ _ .

I chose the name _ because

_
___
_.
You can use it to _ _
_ _
_.

I chose the Brand Name because

_
_ _.

Rubrics for Scoring

Score Description
The imaginary product is illustrated with a unique the brand name. There
15
is an explanation describing the product and its name.
The imaginary product is illustrated with a brand name. There is an
12
explanation describing the product and its name
The imaginary product is illustrated with a brand name. There is an
9
explanation describing the product.
6 The imaginary product is illustrated with a brand name.
3 The imaginary product is illustrated.

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Generalization

You have learned a lot from this module. You already understand all the concepts
from the 7 Ps in the Marketing Mix to Developing a Brand Name.
Marketing mix constitutes of the 7P’s in the case of products – product, price,
place and promotion. In case of services, it constitutes of 3 more P’s – people,
packaging and positioning.
All P's should be compatible in the marketing mix. The price is compatible with
the product's placement. The product must be consistent with the promotion. In
general, all P 's are connected intrinsically.
As a result, when you make a marketing mix, it becomes a chain of strong bonds.
Then these connections will lead you to lengthen the chain. Whenever you plan to add
or change existing features, you need to see the general image which helps create a
fresh product in the marketing mix.
Branding is absolutely critical to a business because of the overall impact it
makes on your company. Branding can change how people percept your brand, it can
drive new business further and increase brand awareness.

Am I Important?
Let’s go deeper! Write the importance of each lesson in your life as a future
entrepreneur? Write your answers in your activity notebook.

Lesson 1: The Marketing Mix (7P’s) in Relation to the Business Opportunity

What I want to say about the lesson:

Lesson 2: Develop a Brand Name

What I want to say about the lesson:

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What I Can Do

Paste the P’s

Look for newspapers or magazines. Find and identify pictures related to the P’s
in Marketing Mix. Cut out the pictures, sort and paste them on the box, then write a
short description on the line next to the picture. Do it in your activity notebook.
PICTURE 1

PICTURE 2

PICTURE 3

PICTURE 4

Rubrics for Scoring

Score Description
15 The table is complete with pictures and the descriptions are correct.
12 The table is lacking one (1) picture and the descriptions are correct.
9 The table is lacking two (2) pictures and the descriptions are correct.
6 The table is lacking three (3) pictures and the descriptions are correct.
3 The table is lacking one (4) picture and the descriptions are correct.

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Post Assessment

Identification
Write the word or phrase that is being described or completes the thought of each
statement.

1. It is a set of controllable and interrelated variables composed of

product, place, price and promotions that a company assembles
to satisfy a target group better than its competitor.
2. The amount of money that a customer pays for to enjoy a product
or service.
3. It is any initiative undertaken by an organization to promote an
increase in sales, usage or trial of a product or service
4. It occurs when an individual salesperson sells a product, service
or solution to a client.
_5. It can be intangible or tangible as it can be in the form of services
or goods.
6. The way your product or service appears from the outside.
7. A marketing model that modifies the 4Ps model.
8. It is responsible for every element of your sales, marketing
strategies, and activities.
9. It refers to how a business creates awareness in the market.
10. It claims a new space in the mind of the customer different from
the spaces occupied by existing products.
11. The ultimate marketing strategy.
12. This is where your product or service is actually sold.
13. The place occupied by products in the hearts and minds of the
consumers.
14. A name, symbol, or other feature that distinguishes a seller's
goods or services in the marketplace.
15. A powerful and sustainable high-level marketing strategy used
to create or influence a brand.

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Additional Activities
The Power of Color!
Below are different colors. Think of a particular product or company that you can
identify with each color. Write your answers in the box beside each color.

RED- ex.CHOWKING

BLUE-

BLACK-

YELLOW-

ORANGE-

GREEN-

Rubrics for Scoring

Score Description
The diagram is complete with the right brand written in its corresponding
15
color.
The diagram is lacking one (1) with the right brand written in its
12
corresponding color.
The diagram is lacking two (2) with the right brand written in its
9
corresponding color.
The diagram is lacking three (3) with the right brand written in its
6
corresponding color.
The diagram is lacking four (4) with the right brand written in its
3
corresponding color.

This is the end of Module five (5). You did a great job! It is Indeed an
achievement. Congratulations!!! Hard work pays off and you really proved it!!! Try to
learn more about Entrepreneurship in the next Modules. Thank you for being patient,
honest, and committed.

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QUARTER CHALLENGE 1

Instructions: Recall what you’ve learned. Shade or darken the letter that
corresponds to the BEST answer. There is only one BEST answer
for each question.
A B C D
O O O O 1. The entrepreneurs who create new ideas are called
A. Innovative C. Fabian
B. Imitating D. Drone
O O O O 2. The entrepreneur who lives on the labor of others is called
A. Drone C. Imitating
B. Fabian D. Innovative
O O O O 3. These are entrepreneurs who are to follow the path shown by
innovative entrepreneurs.
A. Innovative C. Social Entrepreneurs
B. Imitating D. Fabian
O O O O 4. Which of the following is NOT a function of an entrepreneur?
A. Skills management C. Conduct research
B. Risk taking D. Make no changes with his product
O O O O 5. Entrepreneur means:
A. Risk taker C. To research
B. To undertake D. To improve standard of living
O O O O 6. It is a personality factor which means “doing things even before
being told”
A. proactive C. persuasion
B. perseverance D. initiative
O O O O 7. It is a personality factor which means convincing customers to buy
the product
A. Proactive C. Self-confidence
B. Persuasion D. Risk taker
O O O O 8. Which of the choices is NOT part of the environmental factors?
A. Political C. climate
B. Weather condition D. family background of the manager
O O O O 9. All except one does NOT belong to the group, which one is it?
A. Unfair trade practices C. Political protest
B. Strikes D. Product
O O O O 10. The entrepreneur who is skeptical about the changes in the
company is called?
A. Fabian C. Drone
B. Social entrepreneur D. Imitating

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O O O O 11. The following are the forces competing within the industry except
one, which one is it?
A. Potential new entrants and Substitute Products
B. Buyers and Suppliers
C. Rivalry among existing firms
D. Needs and Wants
O O O O 12. They are the ones that provide something that is needed or wanted.
A. Buyers C. Buyers
B. Competitors D. Sellers
O O O O 13. It refers to the physical environment, societal environment, and
industry environment where the business operates.
A. Entrepreneurial mind frame C. Entrepreneurial heart flame
B. External Environment D. Entrepreneurial heart frame
O O O O 14. They are the ones who enter something.
A. Buyers C. Suppliers
B. new entrants D. Sellers
For questions 15 to 16 refer to the following statements:
A. Substantial capital requirement
B. Substitute products are not readily available in the market
C. Difficulty in accessing distribution channels
D. The product or service is unique
E. Characteristics of the products or services
F. Increased capacity
O O O O 15. In Potential New Entrants the intensity of its threat will be affected by
the presence of the following barriers.
A. A and C C. A only
B. A, B, C and D D. All of the above
O O O O 16. In rivalry among existing firms, the industry is attributable to the
following factors.
A. E and F C. A and B
B. A, B, C and D D. All of the above
O O O O 17. Which of the following includes the industry environment of the
business?
A. Competitors C. Creditors
B. Customers D. All of the above
O O O O 18. It is the process of considering, evaluating, and pursuing market-
based activities that are believed to be advantageous for the firm.
A. Opportunity seeking C. Opportunity screening
B. Opportunity seizing D. Sources of opportunity
O O O O 19. This is essential to opportunity-seeking which allows the
entrepreneur to see things in a positive and optimistic light in the
midst of crisis or difficult situations.
A. Entrepreneurial mind frame C. Entrepreneurial heart flame
B. Entrepreneurial gut game D. Entrepreneurial heart frame

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O O O O 20. It is the ability of entrepreneur that can sense without using the five
senses, also known as intuition.
A. Entrepreneurial mind frame C. Entrepreneurial heart flame
B. Entrepreneurial gut game D. Entrepreneurial heart frame

O O O O 21. What is the function of Value Proposition?

A. used to power up sales
B. determine customers buying habits
C. convince customer to purchase a particular product or services.
D. provide value to your customers
O O O O 22. This is an example of promotion using Value Proposition and Unique
Selling Proposition.
A. fruit shake stand
B. with the slogan “Langhap Sarap”
C. ordinary sari-sari store
D. multinational business
O O O O 23. These are the types of requirements, which one is a type of customer
requirement?
A. service responsibility C. service requirement
B. service-oriented D. service fulfillment
O O O O 24. This is considered as favorable indicators for doing business in a
particular location.
A. structure of the segment C. size and growth of the segment
B. capability of the business D. segmentation marketing
O O O O 25. What is market size?
A. Tangible things that can be seen
B. The most important part to the success of the company
C. Size of arena where the entrepreneur will play their business
D. Another variation of segmentation marketing
O O O O 26. This refers to how you sell your products or services to your customer.
A. Value proposition C. Selling proposition
B. Marketing concept D. Unique selling proposition
O O O O 27. Service requirement is a thing or product that cannot be
touched but the customer can feel the fulfillment of buying or using it.
A. Intangible C. Service
B. Tangible D. Output
O O O O 28. The following are tips for the entrepreneur on how to create an
effective unique selling proposition to the target customers, except
A. Completeness of proportion
B. Identify and rank the uniqueness of the product or services
characteristic.
C. Be Very specific
D. Keep it short and simple

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O O O O 29. will determine the entrepreneur’s
possible customers in one locality.
A. Market design C. Market strategy
B. Market size D. Market research
O O O O 30. The following are variables to consider in behavioral segmentation,
except.
A. perception C. reaction
B. brand concept D. benefits
O O O O 31. It is the most common way to gather primary information/data with
the use of questionnaires or interview schedule.
A. Interview C. Survey
B. Focus group discussion D. Data gathering
O O O O 32. It is the traditional method of data collection which is normally done
on a face-to-face manner with the respondents.
A. personal interview C. survey
B. focus group discussion D. data gathering
O O O O 33. It refers to a type of focus group discussion where it obtains
information on general attitudes, understands the circumstances
under which customers might require your product or service, and
understand their desired outcomes.
A. trend explanation C. feature prioritization
B. exploratory D. comparative analysis
O O O O 34. It is a type of FGD where customers go to get similar information,
services or products and what attracts them to those resources.
A. trend explanation C. feature prioritization
B. exploratory D. comparative analysis
O O O O 35. A data gathering technique where it can be moderated to group
interviews and brainstorming sessions that provide information on
user’s needs and behaviors.
A. personal interview C. survey
B. focus group discussion D. data gathering
O O O O 36. It refers to information gathered directly from the respondents who
answered a set of questions.
A. primary research C. survey
B. secondary research D. data gathering
O O O O 37. It is a type of discussions in FGD if trade-offs have to be made among
various customer needs.
A. trend explanation C. feature prioritization
B. exploratory D. comparative analysis
O O O O 38. A data gathering technique where it can be done via direct mail, over
the phone, internet or e-mail.
A. data gathering C. focus group discussion
B. survey D. personal interview

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O O O O 39. It is the process of gathering, analyzing and interpreting the
information about the product or the services to be offered for sale in
the market, the market and about past, present and any potential
consumers for the products.
A. data gathering C. secondary research
B. primary research D. market research
O O O O 40. It is an important aspect of any type of research study, it can impact
the results of a study and ultimately lead to valid or invalid results.
A. data collection C. secondary research
B. primary research D. market research
O O O O 41. Which one is not a P in Marketing Mix?
A. Price B. People C. Participant D. Promotion
O O O O 42. Which statement supports Marketing Mix?
A. The marketing mix is also known as the “M’s” in marketing.
B. Marketing Mix is a set of controllable and connected variables that
a company gathers to satisfy a target group better than its
competitor.
C. There are only 4 P’s in Marketing Mix.
D. None of the above
O O O O 43. Select the best definition of Product.
A. A product is an item that is built or produced to satisfy the needs of
a certain group of people, it can be intangible or tangible.
B. A product is an item that is built or produced primarily to gain profit;
it can be intangible or tangible.
C. A product is an item that is built or produced to compete in the
world of business; it can be intangible or tangible.
D. None of the above
O O O O 44. Choose the best statement that applies to Consumer Goods.
A. A buyer of consumer goods must have complete knowledge of the
goods he buys and uses.
B. After-sale service is of paramount importance in the case of all
consumer goods.
C. The market for consumer goods is affected by technological
changes.
D. A buyer of consumer goods may not have thorough knowledge of
the goods he buys and uses.
O O O O 45. What factors would change in the distribution channel if there will be no
Intermediary like producer and consumer?
A. Nothing will take place, since it has no intermediary levels. In this
case the manufacturer cannot sell to customers.
B. Direct-marketing will take place, since it has no intermediary levels.
In this case the manufacturer sells directly to customers.
C. The company will utilize technology to reach the customers.
D. All of the above

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O O O O 46. What is the advantage of Penetration Pricing?
A. A firm has three options and these are to price lower, price the
same or price higher than competitors
B. A firm can create the perception that the products must have a
higher value than competing products because the prices are
higher.
C. The company earns more through cross-selling products along with
a basic core product.
D. The company will gain market share because the price charged for
products and services is set artificially low.
O O O O 47. Promotions refer to the partial set of activities, which communicate
the product, brand or service to the user. The idea is to make
people aware, attract and induce to buy the product, in
preference over others. Find the error.
A. partial set of activities
B. which communicates the product
C. idea is to make people aware, attract and induce to buy the
product
D. No error
O O O O 48. How would you promote a product?
A. By offering Free Gifts, Free Samples, Free Trial, Customer
Contests, Special Pricing
B. By offering Brochure, Catalogues, Fliers, Newsletters
C. By offering Post cards, Coupons, Email, Phone calls, Text
messages
D. None of the above
O O O O 49. The following are interpretations of the word Brand except
A. a legal instrument
B. a logo
C. a business
D. a vision
O O O O 50. How can you define your business's purpose?
A. Purpose can be defined in two ways: Functional which focuses on
the evaluations of success in terms of immediate and
commercial reasons and Intentional which focuses on success as
it relates to the ability to make money and do well in the world.
B. Purpose can be defined in two ways: National which focuses on
the evaluations of success within the country for commercial
reasons and International which focuses on success as it relates
to other countries to make money and do well in the world.
C. All of the above
D. None of the above

87
Quarter 2 — Module 6
4M’s of Production and Business Model
What I Need to Know

In developing a business plan we also have to consider the importance of the

4M’s of operations in all business opportunities; the Manpower, Method, Machine, and
Materials, because it helps you to identify the problems of the business in the future
and in actual situations especially in the production process and marketing.

In application of your 4M’s of production, it is best to consider the customer’s

point of view in terms of their influences as to why they will buy a particular product,
your product aims to answer each consumer’s wants or needs and meets with their
expectations over the product, and how do suppliers, value chain and supply chain
affect the business and production.

This module will guide you to demonstrate understanding of the 4M’s of operations
and for you to be able to:

• Describe the 4M’s (Manpower, Method, Machine, Materials) of operations in

relation to the business opportunity;
• Appreciate the importance of production process, business model and business
plan.
• Apply the concept of 4M’s of production in a small manufacturing business.

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What I Know

Before we start with this module, answer the following questions below.

Directions: Write True if the statement is correct, otherwise, write False if the
statement is incorrect on the space provided below.

1. Output represents the final products from the production process and
distributed to the customers.

2. The 4M’s in the production operation are the materials, manpower,

machine and money.

3. Manpower in production operation refers to the workers involved in the

production of goods.

4. Product description is the marketing copy that explains what a product is

and its benefits.

5. Prototype is a replica of a product.

6. Product to produce is one of the factors to be considered in the production

method.

7. Educational qualifications and experience is one of the criteria in

considering manpower.

8. Skills and expertise is not important in considering manpower.

9. Benefits are the reasons why customers will decide to buy the products.

10. Machine refers to the manufacturing equipment.

11. Supplier is an entity that supplies goods and services to another

organization.

12. Supply chain is a system of organizations, people, activities, data and

properties involved in moving a product or service from supplier to
customer.

13. Business model describes the rationale of how an organization makes,

transports, and captures value in economic, social, cultural or other
contexts.

14. In selecting the type of equipment to purchase, the entrepreneur may

consider cost and capacity of the equipment.

15. Value chain is the process or activities by which a company adds cost
to an article, that includes production, promotion, and providing of
after-sales service.
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Lesson 4M’s of Operations in Relations to the
Business Opportunity and
6 Developing a Business Model

What’s In

In your previous lesson, you learned about the 7P’s of Marketing Mix; Product,
Place, Price, Promotion, People, Packaging and Positioning in relation to business
opportunity, wherein marketing is about creating and accumulating customers.
Marketing plans are intended to capture a market portion and to setback competitors.

Brand name was also introduced, where it is a name, symbol, or other feature
that distinguishes a seller’s goods or services in the marketplace. Your brand is one
of the greatest assets because your brand is your customers’ over-all experience of
your business.

Experts believe that a good brand can result in better loyalty for its customers,
a better corporate image and a more relevant identity.

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What’s New

GUESS THE PICTURE.

Direction: Given with the following pictures, fill in the following blanks
below to form a meaningful word. Two (2) points for each
correct word.

M P W R M H N S

M T I S M H S

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What is It

An entrepreneurial venture may either be a sole proprietorship, a partnership,

or a corporation, engaged in merchandising, manufacturing, or service. Nevertheless,
whatever type and nature of business ventures is opened to exploit different business
opportunities, innovation or creativity defines the distinction between an entrepreneur
and an ordinary business person.
Thus, the concept of innovation or creativity must, in almost all instances, be
introduced and practiced. An entrepreneur finds way to introduce innovation from the
production process to the marketing stage, while an ordinary businessperson simply
imitates business practices and procedures.
The concept of innovation or creativity can easily be practiced and highly
noticeable in a manufacturing operation since raw materials are transformed to
finished goods through the production process. Innovation can be introduced from the
production phase up to packaging and delivery.
The three important elements in the production system are; the input, the
transformation of production process and the output.

Input Production
Output
Process

Figure 1.1. The Three Important Elements in the Production System

The Input includes the following:

1. Manpower
2. Materials
3. Machine
4. Design
5. Instructions
The Production process, also referred to as the transformation or conversion
process, is the stage of production where the materials are transformed into the final
product with the aid of manpower and machine.

The output represents the final product from the production process and
distributed to the customers.
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4 M’s of Production
The most serious issues in the whole production system are the inputs and the
transformation process. Their quality determines the quality of the output.
The factors involved in the input and the production process are usually referred
to as the Four M’s of production, namely Manpower, Method, Machine, and Materials.

Four M’s

• Manpower
• Method
OUTPUT
• Machine
• Materials

Figure 1.2. The Four M’s in the Production System

Manpower

Manpower talks about human labor force involved in the manufacture of products.
It is measured as the most serious and main factor of production. The entrepreneur
must determine, attain and match the most competent and skilled employees with the
jobs at the most appropriate time period.
Educational qualifications and experience, status of employment, number of
workers required, skills and expertise required for the job are some of the manpower
criteria that must be highly considered by the entrepreneur.

Materials

It simply refers to the raw materials necessary in the production of a product.

Materials mainly form part of the finished product. Just in case the resources are below
standard, the finished product will unsatisfactory as well. The entrepreneur may
consider cost, quality, availability, credibility of suppliers and waste that the raw
materials may produce.

Machine

Machine is about manufacturing equipment used in the production of goods or

delivery of services. In the process of selecting the type of equipment to purchase, the
entrepreneur may consider types of products to be produced, production system to be

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adopted, cost of the equipment, capacity of the equipment, availability of spare parts
in the local market, efficiency of the equipment and the skills required in running the
equipment.

Method

Method or production method is the process or way of transforming raw materials

to finished products. The resources undergo some stages before it is finalized and
become set for delivery to the target buyers. The selection of the method of production
is dependent on product to produce, mode of production, manufacturing equipment to
use and required skills to do the work.
MAN MACHINE METHOD
Skill Design
Technology Installation Schedule
Organization
Improve
Resources Supplies Procedure
Process Communications

Equipment
Design Budget
Attribute
Quality Demands

MATERIAL OTHER
Figure 1.3. Illustration of Four M’s in the Production System

The product is the physical output of the whole production process. It should
be valuable and beneficial to the consumers and should satisfy their basic needs and
wants. A product can be heterogeneous or homogeneous. A heterogeneous product
has dissimilar characteristics, parts, and physical appearance. It can be easily

identified from other products. Entrepreneurial ventures that produce heterogeneous

products include makers of furniture, bags, and home decors.
On the other hand, a homogeneous product has a physical appearance,
taste, or chemical content that can hardly be distinguished from that of the other
products. Businesses that produce homogeneous products include makers of soft
drinks, and medicines.

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After knowing the production process and system, and how the product is being
processed, not it is important to know about product description, wherein product
description promotes and explains what a product is and why it’s worth buying. The
purpose of a product description is to provide customers with details around the
features and benefits of the product so they’re obliged to buy.
Know who your target market is, focus on the product benefits, tell the full story,
use natural language and tone, use power words that sell, and use good images.
These are guidelines for you to have a good product description; since some
customers are very particular with it since they consider the welfare of their family, if it
is safe to use.
Prototype is created before the massive production of such product; an
entrepreneur must consider prototyping. One of the important early steps in the
inventing process is making a prototype. A prototype is a duplication of a product as
it will be produced, which may contain such details as color, graphics, packaging and
directions. Benefits are the reasons why customers will decide to buy the products
such as affordability, efficiency or ease of use. The features of the product or service
merely provide a descriptive fact about the product or service.
Most importantly, it is better to test your product prototype to meet customers’
needs and expectations; and for your product to be known and saleable. Pretesting of
the product or service is similar to a sample of the product or service given to the
consumer free of cost in order that he/she may try the product before committing to a
purchase.
The entrepreneur’s main concern is the satisfaction of a customer, for they are
the life blood of the business. Without them, all the efforts, will be wasted as well as
the chance to venture into a new business.
In a manufacturing venture, the supplier plays a vital role. They are your
business partners, without them your business will not live. You need them as much
as you need your customers to be satisfied. But as an entrepreneur you have to

choose a potential supplier who has loyalty and values your partnership: a supplier
who would lead you to the fulfillment of your business objectives, mission and vision.
This entity is part of a supply chain of a business, which may offer the main part of
the value contained within its products. Certain suppliers may even involve in drop
shipping, where they ship goods directly to the customers of the buyer.

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How do supply chain management systems coordinate planning, production,
and logistics with suppliers?
Supply chain management systems automate the flow of information among
members of the supply chain so that they can use it to make better decisions about
when and how much to purchase, produce, or ship.
Value chain is a method or activities by which a company adds value to an
item, with production, marketing, and the provision of after-sales service. The main
goal and benefit of a value chain, and therefore value chain analysis, is to make or
support a competitive benefit.
A supply chain is a structure of organizations, people, activities, data, and
resources involved in moving a product or service from supplier to customer.
The main objective of supply chain management includes management of a
varied range of components and procedures, for instance, storing of raw materials,
handling the inventory, warehousing, and movement of finished product from the point
of processing to the point of consumption.
When value chain management is implemented effectively, the flow of products
and materials is improved through the accurate forecasting of sales and demand as
well as improved inventory management. Delays are also minimized and products are
visible and traceable throughout the supply chain.
Supply chain management decreases purchasing cost. Retailors depend on
supply chains to quickly distribute costly products to avoid sitting on expensive
inventories. Any delay in production can cost a company tens of thousands of pesos.
This factor makes supply chain management ever more important.
Value chains help increase a business's efficiency so the business can deliver
the most value for the least possible cost. The end goal of a value chain is to create a
competitive advantage for a company by increasing productivity while keeping costs
reasonable.

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Business Model

Business model describes the factors 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 part of a business plan.
It is a company's plan on 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.
There are important phases in developing your business model, namely: identifying
the specific audience; establishing business process; recording business resources;
developing strong value proposition; determining key business partners; and creating
demand for today’s generation strategy and being 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.

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Business Plan
What is a Business Plan For?
Entrepreneurs who plan to enter any business endeavor must have a business
plan on hand to guide them throughout the process. Different business plans are
prepared for different purposes. There are business plans written prior to setting up
an enterprise, which are similar to a prefeasibility study and a feasibility study. Many
new enterprises need to convince prospective business investors about the
soundness and potential of their business.

There are business plans that are written during the first few years of the
enterprise in order to guide the entrepreneur on which strategies would be most
beneficial for the enterprise to take. And there are business plans that are focused on
bringing the enterprise to a higher level of growth, a period where the enterprise has
already reached its peak and would want to enter into another endeavor by creating
and re-establishing itself.
Clearly, a business plan serves many masters. First, it serves the entrepreneur
who must set a navigational course. Second, it serves investors and cautious
financiers. And third, it serves the managers and staff of the organization so that they
will know the strategies and programs of the enterprise.
Read the different scenarios below to fully understand the importance of having
a business plan.
Scenario 1:
“Jessie is the eldest of the five children of Mr. & Mrs. Natividad. The family is
having difficulty to support their everyday needs. Because of this, Jessie tried selling
banana cue and with his dream to make his business grow, he put up many stalls in
the community without considering the advises of his friends to make a business plan
before implementing his decision. After a few months his stalls shutdown.”
Scenario 2:
“Mercy is the youngest in the family. She found out that she loves to cut hair
and apply make up on her friends. Until such time that her friends introduced her to
their friends too for haircut and make up when there are occasions. A few months after,
Mercy was told by her friends to put up a beauty parlor in their place. So she asks her
mother who is also a businesswoman to teach her how to make a business plan and
eventually ended with a successful business.”
Scenario 3:
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“Monna is a diligent student: because of her knowledge gained from school
about business plan she was able to enhance her skills in business and finally found
herself into her laundry shop business.”
Each scenario taught us that a business is not just about how much income or
profit you can get, but it’s about the life of your business. And in having a business,
you also have to consider Technological forces, Social forces, Political forces, Cultural
forces, Economic forces and Legal forces.

The following are the components found in a Business Plan.

• Introduction - this part discusses what is the business plan all about.
• Executive Summary - is part of the business plan which is the first to be
presented but the last to be made.
• Management Section - shows how you will manage your business and the
people you need to help you in your operations.
• Marketing Section - shows the design of your product/service; pricing, where
you will sell and how you will introduce your product/service to your market.
• Financial Section - shows the money needed for the business, how much you
will take in and how much you will pay out.
• Production Section - shows the area, equipment and materials needed for the
business.
• Competitive Analysis - is the strategy where you identify major competitors
and research their products, sales and marketing strategies.
• Market – refers to the persons who will buy the product or services
• Organizational chart - is the diagram showing graphically the relation of one
official to another, or others of a company.

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What’s More

General Directions: Answer the following questions based on your learnings about
4M’s of Production and Value Chain or Supply Chain. Write your answer on the
space provided. Five (5) points for each correct answer for Problem No.1 and 2
points for each correct answer in Problem No. 2.

Independent Activity No. 1. “In your home, when you want to eat egg sandwich
before going to school, your mother would surely prepare it for you. Your egg
sandwich would not be produced without a process.”

1. Who would be your manpower?

2. What would be your materials?

3. What machines or tools would you use? _

4. What methods are needed to produce the egg sandwich? (Cooking procedure
enumerate them).

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Independent Activity No. 2: With the pictures shown below, identify each
picture whether it is Value Chain or Supply Chain.

1.

Processing of Raw Materials (Corn)

2.

Product Delivery

3.

Processing of Raw Materials (Coconut)

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What I Have Learned

Complete the statements below and write your answers in your Entrepreneurship
activity notebook.

1. _ talks about human labor force involved in the manufacture of

products. It is considered as the most serious and main factor of production.
2. _ is about raw materials necessary in the production of a
product.
3. _ refers to the process or way of transforming raw materials to
finished products.

4. The purpose of a is to provide customers with details

around the features and benefits of the product so they’re obliged to buy.
5. It is a duplication of a product as it will be produced, which may contain such
details as color, graphics, packaging and directions. One of the necessary early
steps in the inventing method is creating a .
6. are your business partners, without them your business will not
live.
7. describes the reasons of how an organization
creates, delivers, and captures value in economic, social, cultural or other
contexts.
8. is an important tool for you to have an idea about the
future of your business.
9. is part of the business plan which is the first to be
presented but the last to be made.
10. shows the design of your product/service; pricing,
where you will sell and how you will introduce your product/service to your
market.

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What Can I Do

Direction: Answer the following questions based on the picture shown below. Write
your answers in your Entrepreneurship activity notebook. Two (2) points for each
correct answer.

1. Are you familiar with the picture above? Give one example of a food business
establishment that you think is famous among teenagers today.
2. What do you think is the reason why this particular food business
establishment became famous amongst teens nowadays?
3. Do you know some other ways to enjoy their product other than coming in
personally into their store and buying their product for yourself?
4. Do you think such strategies are effective to make the business more
productive? Why or why not?

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Assessment

Direction: Encircle the letter of your choice.

1. Which of the following refers to the human workforce involved in the

manufacture of products?
A. Materials B. Method C. Machine D. Manpower
2. The 4M’s of production are as follows except ONE. Which one is it?
A. Management B. Manpower C. Method D. Machine
3. Which of the following refers to the marketing copy that explains what a product
is and why it is worth purchasing?
A. Prototype C. Business Model
B. Product description D. Suppliers
4. It represents the final products from the production process and distributed to
the customers.
A. Input B. Supplies C. Output D. Materials
5. It is a replica of a product.
A. Prototype C. Business Model
B. Product description D. Suppliers
6. Which of the following refers to the system of organizations, people, activities,
information, and resources involved in moving a product or service from
supplier to customer?
A. Supply Chain B. Value Chain C. Business model D. Prototype
7. Which of the following is the process or activities by which a company adds
value to an article, including production, marketing, and the provision of after-
sales service?
A. Supply Chain B. Value Chain C. Business Model D. Prototype
8. It describes the rationale of how an organization creates, delivers, and captures
value in economic, social, cultural or other contexts.
A. Prototype C. Business Model
B. Product description D. Suppliers

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9. It is an entity that supplies goods and services to another organization.
A. Prototype B. Product Description C. Business Model D. Suppliers
10. Which of the following refers to the manufacturing equipment used in the
production of goods or delivery of services?
A. Machine B. Manpower C. Method D. Materials
11. It refers to the process or technique of converting raw materials to finished
products.
A. Machine B. Manpower C. Method D. Materials
12. It simply refers to the raw materials needed in the production of a product.
A. Machine B. Manpower C. Method D. Materials
13. Statement I - Skills and expertise are not important in considering manpower.
Statement II - Benefits are the reasons why customers will decide to buy the
products.
A. Only Statement I is true. C. Both Statements are true.
B. Only Statement II is true. D. Both Statements are false.
14. Statement I - Educational qualifications and experience is one of the criteria in
considering manpower.
Statement II - Product to produce is one of the factors to be considered in
method or production method.
A. Only Statement I is true. C. Both Statements are true.
B. Only Statement II is true. D. Both Statements are false.
15. Statement I - In selecting the type of equipment to purchase, the entrepreneur
may consider cost and capacity of the equipment.
Statement II - The purpose of a product description is to supply customers
through details around the features and benefits of the product.
A. Only Statement I is true. C. Both Statements are true.
B. Only Statement II is true. D. Both Statements are false.

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Additional Activities

Business Plan Making

Below is a template for a business plan. You need to fill this out using the
information about the business you want to pursue. Write it in your activity notebook
in Entrepreneurship.

MANAGEMENT This section will show how you will manage your business and
SECTION the people you need to help you in your operations

a. Manager:

b. Workers: _

MARKETING This section shows the design of your product/service;

SECTION pricing, where you will sell and how you will introduce your
product/service to your market.

a. Product Description:

b. Price:

c. Selling location:

d. Promotional Activity:

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FINANCE This section shows the money needed for the business, how
SECTION much you will take in and how much you will pay out.

a. Capital Amount: _

b. Expected Daily Sales: _

c. Expected Daily Expenses:

d. Income per Day: _ _

PRODUCTION This section shows the area, equipment and materials

SECTION needed for the business.

a. Draw a lay out of your production area:

b. Enumerate the equipment needed:

c. Enumerate the materials needed:

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RUBRIC FOR BUSINESS PLAN MAKING
The content was well-
thought of guide
Content 15
questions were
thoroughly answered.
The paper was well-
Organization written with ideas easily 10
conveyed to readers.
Points are thoroughly
Development 5
developed.
TOTAL 30

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Quarter 2 — Module 7
Forecasting Revenues and Costs Department
What I Need to Know
Now that you have identified what business to undertake and are familiar
with the tools and materials needed in the operation of your business, let us apply
what you have learned in the previous module by forecasting the revenues and
costs incurred in your business. You might probably be wondering how profits are
computed. This module will help guide you realize the revenues and profits of
your chosen business.

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 incured in
selling the goods/merchandise. How much revenues and costs incurred in the
operation of the business, how are these projected, and how are these used to
compute profit/loss of the business shall be learned in this module.

This module is divided into two lessons:

Lesson 1 – Forecasting the revenues of the business

Lesson 2 – Forecasting the costs to be incurred

To be able to successfully complete this module, previous knowledge in

multiplying numbers will best help.

Why forecast? We often watch news as Kuya Kim reports the direction of
the typhoon in the next 2 days, what Kuya Kim is doing is giving us information
taken by satellites and gives us the direction of the typhoon. In weather
forecasting, the reporter is giving us advance information that could help us
prepare and be ready for upcoming typhoon. This way, risks such as accidents,
devastation of properties and loss of life may be prevented.

Forecasting is a tool used in planning that aims to support management or

a business owner in its desire to adjust and cope with uncertainties of the future.
Forecasting depends on data from the past and present and to make 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

111
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.

In this module, you will be making informed estimates about revenues and
calculate estimates involving costs incurred by the business. Factors affecting
forecasting will be discussed to better help you in making projections.

After carefully studying the contents of this module, you should be able to:

• identify essential factors in forecasting revenues and costs;

• calculate mark-up and selling price of a product or merchandise;
• compute projected revenues;
• compute projected costs; and
• create a table showing projected revenue and costs.
• appreciate the significance of forecasting revenues an costs to a business

112
What I Know
Before starting with this module, let us see what you already know about forecasting
revenues and costs. Answer the questions below.

Encircle the letter that bests correspond to your answer.

1. This refers to the amount added to the cost of a product to determine the selling
price.
a. Revenue b. Cost c. Mark Up d. Mark Down

2. Aling Marta sells bibingka in her neighbourhood, every day she can sell 45 pieces
of bibingka at 20 pesos each. How much is her daily revenue?
a. 900.00 b. 450.00 c. 800.00 d. 1000.00

3. It is a planning tool that helps the entrepreneur copes with uncertainties in the
future operation of the business.
a. Revenue b. Selling c. Benchmarking d. Forecasting

4. The selling price of an item or merchandise is computed by adding cost per unit
and _ ?
a. revenue b. mark up c. discount d. number of Items

5. Mang Berting is a fruit vendor selling at the local public market. He gets his
mangoes from a supplier at 25 pesos per kilo and sells it at 45 pesos per kilo to
his customers. How much mark-up is Mang Berting adding to his selling price?
a. 25.00 b. 30.00 c. 15.00 d. 20.00

6. Aling Elvie sells t-shirt at 175.00 pesos each. If each t-shirt costs 135.00 pesos,
how much is the mark-up?
a. 30.00 b. 45.00 c. 40.00 d. 50.00

7. It is the result when sales exceed the cost to produce goods or render services.
a. Forecasting b. Selling c. Revenue d. Benchmarking

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

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

9. This 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

10. Mang Lito sold 5 pairs of slippers. Suppose Mang Lito purchased the 5 pairs of
slippers at P 30.00 each and pays P120.00 freight. Calculate how much is the
cost of goods sold?
a. 220.00 b. 420.00 c. 270.00 d. 200.00

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11. This 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

12. This refers to costs incurred through payment of utilities such as electricity and
water.
a. Revenue c. Mark-up
b. Operating expenses d. Free

13. Merchandise or goods purchased are referred to as –

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

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

15. Jean purchased 5 baskets for P 30.00 each. According to her calculation, P 10.00
shall be added to the cost as mark-up. How much is the selling price of each
basket?
a. 35.00 b. 40.00 c. 50.00 d. 60.00

How was the pre-test? If your answers are all correct, well very good!
This only shows that you already know about the topic. Please continue to study
to know more about the topic.

If your score are low, this means that this module is for you. Studying
this module will help you understand the concept of forecasting and how this
lesson applies to your daily life. Continue studying this module to know the
answers to all the questions and a lot more.

You may now start learning!

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Lesson
Forecasting the Revenues of the
7.1 Business

What’s In

You have learned in the previous lesson the 4Ms of operations; you now
have the idea on what product/s to manufacture and sell. Now, you also have a
business model. One of the most challenging parts in developing a business plan
is the financial plan. This part allows the entrepreneur to make decisions based
on financial assumptions without even having started the business. Therefore,
these financial projections should be given the most attention by the
entrepreneur.

Let us now examine how the sale of products generates revenues. In

this lesson, we will identify the mark-up and selling price of the product. We will
also project the revenues that the business will make from the sale of products

115
What’s New

Have you tried estimating the time that it takes you to travel from home
to school? Try to fill in the necessary information in the table below. Write your
estimate in Estimated Time column, after arriving to school fill in the Actual Time
in the blank provided.

Estimated Time Actual Time

1. _
2. _
3. _

How close were your estimates compared to the actual time? Did your
estimate fall short compared to the actual time? What do you think were the

factors that might have contributed in getting you early to school? List the reasons
in the blank.

On the other hand, does your actual time exceed your estimates? What
do you think were the factors that might have contributed in arriving later than
your estimated time? List the reasons in the blank.

116
What is It
Making informed estimates requires careful considerations on several
factors that might affect the outcome of your travel such as, distance from home
to school, the means of transportation you will be taking, the number of
passengers and etc. Traveling from home to school on a regular basis had helped
you arrive with an estimate that was very close to the actual time of arrival.

Considering these factors is essential in making informed estimates by

the entrepreneur. Since the business he/she is venturing hasn’t started yet, it is
important that these factors affecting forecasting will be determined to better help
him/her in making the best decisions for the business.

For the entrepreneur, after realizing the potential for profit of his/her
business concept, the next step is to estimate how much the revenue is on a
daily, monthly and annual basis. Before going to forecasting and projecting the
revenues of the business, let us determine first what revenue is.

Revenue is a result when sales exceed the cost to produce goods or

render the services. Revenue is recognized when earned, whether paid in cash
or charged to the account of the customer. Other terms related to revenue include
Sales and Service Income. Sales is used especially when the nature of business
is merchandising or retailing, while Service Income is used to record revenues
earned by rendering services.

Now that you know about revenue, Let us determine the factors to
consider in forecasting revenues.
You have just learned about what revenue is. This time, let us study the
various factors to consider in forecasting revenues.
The entrepreneur would want his/her forecasting for his/her small
business as credible and as accurate as possible to avoid complications in the
future. 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:

117
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. The entrepreneur must be able to identify the overall health of the
economy in order to make informed estimates. A healthy economy makes good
business.
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 idea as to how much your competitors are selling. This will give you a
benchmark on how much products you need to stock your business in order to
cope with the customer demand. This will also give you a better estimate as to
how much market share is available for you to exploit.
3. Changes happening in the community. Changes happening in the environment
such as customer demographic, lifestyle and buying behavior give the
entrepreneur a better perspective about the market. The entrepreneur should
always be keen in adapting to these changes in order to sustain the business.
For example, teens usually follow popular celebrities especially in their fashion
trend. Being able to anticipate these changes allows the entrepreneur to
maximize sales potential.
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. For example, a “Puto” maker can only make 250 pieces of puto every
day; therefore, he can only sell as much as 250 pieces of puto every day. The

number of products manufactured and made depends on the capacity of the

plant, availability of raw materials and labour and also the number of
salespersons determine the amount of revenues earned by an entrepreneur.
Now that all factors affecting forecasting revenues are identified, you
can now calculate and project potential revenues of your chosen business. The
table below shows an example of revenues forecasted in a Ready to Wear Online
Selling Business.
Example: Ms. Fashion Nista recently opened her dream business and
named it Fit Mo’to Ready to Wear Online Selling Business, an online selling
business which specializes in ready to wear clothes for teens and young adults.
Based on her initial interview among several online selling businesses, the
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average number of t-shirts sold every day is 10 and the average pair of fashion
jeans sold every day is 6. From the information gathered, Ms. Nista projected the
revenue of her Fit Mo’to Ready to Wear Online Selling Business.
She gets her supplies at a local RTW dealer in the city. The cost per
piece of t-shirt is 90 pesos, while a pair of fashion jeans costs 230 pesos per
piece. She then adds a 50 percent mark up to every piece of RTW sold.
Mark up refers to the amount added to the cost to come up with the
selling price. The formula for getting the mark up price is as follows:

Mark Up Price = ( Cost x Desired Mark Up Percentage)

Mark Up for T-shirt = ( 90.00 x .50)
Mark Up for T-shirt = 45.00

In calculating for the selling price, the formula is as follows:

Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00

Table 1 shows the projected daily revenue of Ms. Nista’s online selling
business. Computations regarding the projected revenue is presented in letters
in upper case A, B, C, D, and E.

Table 1
Projected Daily Revenue
Fit Mo'to Ready to Wear Online Selling Business
Projected
Volume Projected
Cost per Mark-up Selling (D) Revenue
Type of Unit 50% Price Average (E)
RTW's (A) (B) (C) No. of
Items Sold (Daily)
(Daily)
(A) (B)= (A x .50) (C)= (A+B) (D) (E) =(C x D)

T-Shirts 90.00 45.00 135.00 10 1,350.00

Jeans 230.00 115.00 345.00 6 2,070.00

Total 320.00 160.00 480.00 16 3,420.00

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Table 2 shows the projected monthly and yearly revenue of Ms. Nista’s online
selling business. Computations about the monthly revenue is calculated by
multipying daily revenues by 30 days ( 1 month).

For example, in Table 1 the daily revenue is 3,420.00. To get the

monthly projected revenue it is multiplied by 30 days. Therefore,

Projected Monthly Revenue = Projected Daily Revenue x 30 days

Projected Monthly Revenue = 3,420.00 x 30

Projected Monthly Revenue = 102,600.00

On the other hand, the projected yearly revenue is computed by

multiplying the monthly revenue by 12 months. The calculation for projected
yearly revenue is as follows.

Projected Yearly Revenue = Projected Daily Revenue x 365 days

Projected Yearly Revenue = 3,420.00 x 365

Projected Yearly Revenue = 1,248,300.00

Table 2
Projected Monthly and Yearly Revenue
Fit Mo'to Ready to Wear Online Selling Business
Projected Projected
Volume Projected Volume Projected
Selling Average Revenue Average No. Revenue
Type of Price No. of Items of Items
RTW's Sold Sold
(Monthly) (Yearly)
(Monthly) (Yearly)
F= (D x 30 H= (D x 365
(C)= (A+B) G= (C x F) I= (C x H)
days) days)

T-Shirts 135.00 300 40,500.00 3,650 492,750.00

Jeans 345.00 180 62,100.00 2,190 755,550.00

Total 480.00 480 102,600.00 5,840 1,248,300.00

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Table 3 shows the projected monthly revenues covering one year of
operation. The table shows an average increase of revenue every month by 5
percent except June, July to October and December. While the month of June
has twice the increase from the previous month by 10 percent, let us consider
that months covering July to October are considered to be Off-Peak months,
therefore sales from July to October are expected to decrease. It is assumed that
there is no increase in revenue from July to August, while from August to October
the decrease in revenues is 5 percent from previous month. Since revenues from
sales of RTW’s are considered to be seasonal, it assumed that there is a 10
percent increase in revenue from November to December.

Computation for assumed increase of reveneue on specific months is as

follows:

Projected Monthly Revenue (Increase) = Revenue (January) x 5 %

Increase

Projected Monthly Revenue (Increase) = 102,600.00 x .05

Projected Monthly Revenue (Increase) = 5,130.00

Projected Revenue for February = Revenue (January) + Amount of

Increase

Projected Revenue for February = 102,600.00 + 5,130.00

Projected Revenue for February = 107,730.00

On the other hand, decrease in revenue is computed as follows:

Projected Monthly Revenue (Decrease) = Revenue (August) x 5 %

Increase

Projected Monthly Revenue (Increase) = 144,041.14 x .05

Projected Monthly Revenue (Increase) = 7,202.06

Projected Revenue for September = Revenue (August) - Amount of

Decrease

Projected Revenue for September = 144,041.14 – 7,202.06

Projected Revenue for September = 136,839.08

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Table 3
Projected Monthly Revenue
Fit Mo'to Ready to Wear Online Selling Business
Month January February March April May June
Revenue 102,600.00 107,730.00 113,116.50 118,772.33 124,710.94 137,182.04

Month July August September October November December

Revenue 144,041.14 144,041.14 136,839.08 129,997.13 136,496.98 150,146.68
Important Assumptions:
February to May Increase of 5% from previous revenue
June Increase of 10% from previous revenue
July to August The same Revenue
September to October Loss of 5% from previous revenue
November Increase of 5% from previous revenue
December Increase of 10% from previous revenue

The numbers in the last table are very attractive, having revenues that
are increasing in numbers is a good sign that a business is growing. However, an
entrepreneur should not be overwhelmed by these revenues, as these are just
gross revenue, this is not the final amount of profit or income an entrepreneur will
get at the end of every period. Take note that the amount of net revenue is still
subjected to the expenses incurred in the operation of business.

What’s More
After learning the calculations presented, you can now compute the
projected revenue by day, month and year based on your business concept.

Aling Minda is operating a buy and sell business, she sells broomsticks
(walis tingting) in her stall at a local market. She gets her broomsticks from a local
supplier for 25 pesos each. She then adds 50 percent mark-up on each
broomstick. Every day, aling Minda can sell 30 broomsticks.

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Use the template below and fill in the necessary figures based on the
scenario. Remember to use the factors to consider in projecting revenues and
refer to Tables 1, 2 and 3 as your guide.

Table 1
Projected Daily Revenue
Name of Business
Projected
Volume Projected
Cost Revenue
Mark-up Selling (D)
per (E)
% Price Average
Merchandise/ Unit
(B) (C) No. of
Products (A)
Items Sold (Daily)
(Daily)
(B)= (A x
(A) (C)= (A+B) (D) (E) =(C x D)
.50)

Total

Use the calculations you have made in Table 1 to successfully complete the
information in Table 2 and calculate the projected monthly and yearly revenue of Aling
Minda’s business. For Table 3, use the following assumed increases in sales every
month. From January to May, 5 per cent increase from previous sales. For the month of
June, 10 per cent increase from previous sales. For the months July to December, record
the same sales every month.

Table 2
Projected Monthly and Yearly Revenue
Name of Business
Projected Projected
Projecte
Volume Volume Projected
Selling d
Average No. Average No. of Revenue
Merchandise/ Price of Items Sold Revenue Items Sold
Products (Monthly) (Monthly) (Yearly) (Yearly)
(C)= F= (D x 30
G= (C x F) H= (D x 365 days) I= (C x H)
(A+B) days)

Total

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Table 3
Projected Monthly Revenue
Name of Business
Month January February March April May June

Revenue

Month July August September October November December

Revenue

What I Have Learned

Entrepreneurs use _ techniques to determine events
that might affect the operation of the business. Factors such as and
must be considered to avoid possible complications in the future. To
forecast revenues, it is best that the entrepreneur must be acquainted with the
, and _ _ to determine the selling price of a product. This
way, the selling price is then multiplied to the projected volume to arrive with the
.
The entrepreneur should always present the assumptions to consider in
projecting revenues, may it be seasonality, economic slow down or changes in
costumer preferences and the like. This will help achieve the best educated
estimate of your revenues

124
What I Can Do
It is understood that you now know how to calculate mark-up and selling
price of an item or merchandise. Let us try the following situations to see if you
have understood the concepts.

1. Kyle, a local entrepreneur is planning to sell 10 liter-bottled waters in his sari-sari

store. A local water purifying business in the city sells their 10-liter bottled water
for 20 pesos each. Kyle wants to add 25 per cent mark up from the original cost
of 10 liters bottled water. Calculate how much mark-up Kyle should add.
Determine how much should be the selling price for 10-liter bottled water.
2. Zoei sells fruits in a local fruit stand in the market. She gets her fruits from a local
wholesaler in the city. Zoei charges 40 per cent mark up for every kilo of
watermelon she gets. Suppose the cost per kilo of watermelon is 25, how much
is the selling price for one kilo of watermelon?

Assessment
Directions: Write True if the statement is correct, while False if the
statement is incorrect.
_1. When sales exceed the cost to produce goods its result is called
forecasting.
_2. Mark-up refers to the amount added to the cost of a product to determine
the selling price.
_3. Forecasting is a planning tool that helps the entrepreneur cope with
uncertainties in his future operation.
_4. Costs incurred through payment of utilities such as water and electricity
are called operating expenses.
_5. Mang Mario is a fruit vendor. Selling fruits is an example of a service
concern business.
_6. The selling price of a product is calculated by adding its cost per unit and
mark-up.
_7. Merchandise or goods purchased are called Purchases.
_8. Aling Becky sells suman in her neighbourhood, every day she can sell
75 pieces of suman for 5.00 pesos each. Her daily revenue is 325.00
pesos.
_9. Loss is a result when cost to produce goods is greater than the sales.

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Additional Activities
1. Now that you have learned how to forecast revenues of the business, investigate
how these concepts are being applied by existing businesses in your community.
Using the table below, fill in the necessary information based on your
investigation.

Table 1
Projected Daily Revenue
Name of Business
Projecte
d Projected
Volume Revenue
Cost
Mark-up (D)
per Selling Price (E)
% Average
Merchandise/ Unit (C)
(B) No. of
Products (A)
Items
Sold (Daily)
(Daily)
(B)= (A x (E) =(C x
(A) (C)= (A+B) (D)
. %) D)
Example: (13.00 x 25%) (13.00 + 3.25) (16.25 x 5)
13.00 5
1. Notebook 3.25 16.25 81.25

Total

2. Suppose you wanted to start a merchandising business in your community, list

the product/s you want to sell and determine its mark-up and selling price. Use
the same formula for calculation found on the above table.

Merchandise/
Cost per Unit Mark Up Selling Price
Product
1.
2.

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Lesson
Forecasting the Cost to be Incurred
7.2

What’s In
You have learned in Lesson 1 that the revenue generated by selling
RTW’s has a corresponding amount of costs incurred. This cost is the amount of
RTW before adding its mark-up price. Each piece of t-shirt has a corresponding
cost of 90.00 pesos, while each pair of jeans has a corresponding cost of 230.00
pesos. 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 (Electricity), Salaries and Wages and Miscellaneous
are essential in the operation of the business; this allows the business to continue
to 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.

127
What’s New
Have you tried recording the amount of money you spend from your
daily allowance? You might be experiencing difficulties in making your allowance
meet your daily needs as a student. Try to fill in the information below to come up
with a breakdown of your daily allowance.

Breakdown on Daily Allowance

Name: _

Daily Allowance: Ᵽ
Less: Daily Expenses
Food Ᵽ
Fare _
School Supplies _
Recreation _
Others _
Total Ᵽ

Were you able to get a positive total? You may have spent your daily
allowance wisely and saved some of your daily allowance. Did you spend all your
allowance and ended up with a zero total? You may have spent your allowance
on expenses essential to your needs 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.

128
What is It

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.
Purchases refer to the merchandise or goods purchased. Example:
Cost to buy each pair of Jeans or t-shirt 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 these cost.
In a merchandising business such as Fit Mo’to Ready to Wear Online
Selling Business, the formula to compute for costs of goods sold is as follows:

Merchandise Inventory, beginning P XX.XX

Add: Net Cost of Purchases XX.XX
Freight-in XX.XX
Cost of Goods Available for Sale P XX.XX
Less: Merchandise Inventory, end XX.XX
Cost of Goods Sold P XX.XX

Let us calculate the cost of goods sold by Ms. Fashion Nista’s online
selling business for the month of January.

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Table 4 shows the costs incurred during the first month of operation of Fit
Mo’to Ready to Wear Online Selling Business. 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.

Cost of goods is calculated by simply multiplying the number of items sold

every month (300 t-shirts and 180 pairs of jeans) to its corresponding cost per
unit ( 90.00 pesos for every t-shirt and 230.00 pesos for every pair of jeans). A
cost in transporting the goods from the supplier to the seller (Ms. Nista) or Freight-
in is then added to Net Cost of Purchases.

Table 4
Projected Cost of Goods Sold (Monthly)
Fit Mo'to Ready to Wear Online Selling Business
Projected Volume
Average No. of
Type of Cost per Unit
Items Sold Projected Costs of
RTW's
(Monthly) Purchases (Monthly)
(A) F = (D x 30 days) K = (A x F)
T-Shirts 90.00 300 27,000.00
Jeans 230.00 180 41,400.00
Total 320.00 480 68,400.00

Table 5 shows how freight-in is calculated.

It is assumed that 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. x 250.00

40 x 250.00 = 10,000.00

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Table 5
Freight-in Paid by Ms. Nista Every Month
Projected Volume
No. of Items Freight In (January
Type of Average No. of Items
Sold (Daily) Only)
RTW's Purchased (Monthly)

(A) F = (D x 30 days) J = (F/12) x 250

T-Shirts 10 300 6,250.00

Jeans 6 180 3,750.00

Total 16 480 10,000.00

Let us now substitute the values from Table 4 and Table 5. Since there
is no Merchandise Inventory, beginning and end, let us add Cost of Purchases
and Freight-in to get the Cost of Goods Sold.
Merchandise Inventory, beginning P 00.00
Add: Net Cost of Purchases 68,400.00
Freight-in 10,000.00
Cost of Goods Available for Sale P 78,400.00
Less: Merchandise Inventory, end 00.00
Cost of Goods Sold P 78,400.00

Now that the cost of goods sold is now calculated, let us now identify
expenses that the business incurs in its operation. Operating expenses such as
Internet connection, and Utilities like electricity and miscellaneous expense are
important to keep the business running. These expenses are part of the total
costs incurred by the business in its day-to-day operation and are paid every end
of the month. The operating expenses and assumed amounts are presented
below:
Operating Expenses
Add: Internet Connection P 1,299.00
Utilities (Electricity) 800.00
Miscellaneous expense P 300.00
Total Operating Expense P 2,399.00

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To calculate the total costs incurred by the business, cost of goods sold
and total operating expenses are then added. The calculation for the costs
incurred for the month of January is presented below:

Cost of Goods Sold P 78,400.00

Total Operating Expense P 2,399.00
Cost P 80,799.00
Table 6
Projected Monthly Costs (Year 1)
Fit Mo'to Ready to Wear Online Selling Business
Month January February March April May June

Cost of Goods
Sold 78,400.00 82,320.00 86,436.00 90,757.80 95,295.69 104,825.26

Expenses 2,399.00 2,446.98 2,495.92 2,545.84 2,596.75 2,648.69

Total Cost &
Expenses 80,799.00 84,766.98 88,931.92 93,303.64 97,892.44 107,473.95

Month July August September October November December

Cost of Goods
Sold 110,066.52 110,066.52 104,563.20 99,335.04 104,301.79 114,731.97

Expenses 2,701.66 2,755.70 2,810.81 2,867.03 2,924.37 2,982.85

Total Cost &
Expenses 112,768.19 112,822.22 107,374.01 102,202.06 107,226.16 117,714.82

Important
Assumptions
February-
May Increase 5% from Previous Costs Peak
Months
June Increase 10% from Previous Costs
Non-peak
July-August Same Costs Months
September Loss 5% of Previous Costs
October Loss 5% of Previous Costs
November Increase 5% from Previous Costs Peak
December Increase 10% from Previous Costs Months

The projected monthly costs covering the first of operation of Ms. Nista’s
Fit Mo’to RTW Online Selling Business is presented in Table 6.

132
What’s More
After learning the calculations presented, you can now compute the
projected costs by month on your business concept. Use the template below and
fill in the necessary figures based on the scenario.
Mang Eduard operates a buy and sell business. He sells umbrellas in
his shop near the city mall. He gets his umbrellas from a local dealer. Each

umbrella costs 90.00 pesos each. Expecting rainy season to come, Mang Eduard
purchased 4 dozens of umbrellas every week. The supplier then charges 200.00
pesos per dozen for freight. Mang Eduard can sell 12 umbrellas every day.
Remember to use the factors to consider in projecting revenues and
refer to Tables 4, 5 and 6 as your guide. Suppose Mang Eduard purchases and
sales are the same every month, fill in the necessary information in Table 6.

Table 4
Projected Cost of Goods Sold (Monthly)

Projected Volume

Merchandise/ Cost per Unit Average No. of

Products Items Sold (Monthly) Projected Costs of
Purchases (Monthly)
(A) F = (D x 30 days) K = (A x F)

Total

Table 5
Freight-in Paid
Projected Volume
No. of Items Average No. of Freight In (1 Month
Merchandise/
Sold (Daily) Items Purchased Only)
Products
(Monthly)
F = (D x 30 days) J = (F/12) x *Ᵽ200.00

Total

133
Table 6
Projected Monthly Costs (Year 1)
Month January February March April May June

Cost of
Goods Sold

Expenses
Total Cost &
Expenses

Month July August September October November December

Cost of
Goods Sold

Expenses
Total Cost &
Expenses

What I Have Learned

The entrepreneur should always present the assumptions to consider in

projecting costs, may it be cost of goods sold or operating expenses. This will
help achieve the best educated estimates of your costs. The entreprenuer must
clearly identify costs incurred in the business operation. _ _ is
the amount of goods or merchandise sold during a period of time which incurs a
large portion of the total cost of a __ _ business. The cost of
goods sold can be calculated by simply multiplying __ to
its corresponding . A cost in transporting the goods from the
supplier to the seller or _ is then added to Net Cost of
Purchases.

134
What I Can Do
Now that you know how to calculate the projected costs of a business,
look around and interview any business existing in your community such as sari-
sari stores or buy and sell business. Using the table for Projected 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: _ _
Projected Volume
Goods/ Cost per Unit Average No. of Projected Costs of
Merchandise Items Sold (Daily) Purchases (Daily)

Total

Assessment

Now, that you have finished the module, let us check what you have
learned. Answer the questions given below by encircling the letter of the correct
answer.

1. Profit or Loss is computed by subtracting cost / expenses from –

a. income/revenue c. sales
b. sales discount d. operating expenses

2. Sales is an account title used to describe goods or merchandise sold by a

business. What nature of business uses Sales?
a. Servicing c. Merchandising
b. Barber Shop d. Both Servicing and Merchandising

3. Irene sells fashion bags online. She gets each bag for P 150.00 from a local
supplier. She then adds P 100.00 as mark-up for each bag. How much is the
selling price of each bag?
a. P 200.00 b. P 250.00 c. P 300.00 d. P 350.00

4. A merchandising business earns through –

a. rendering services c. donating products
b. lending money d. buys and sells goods
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5. 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 b. guessing c. forecasting d. benchmarking

6. Which of the following businesses use Service Income in recording revenues?

a. Beauty Salon b. Sari-sari store c. Movie House d. Hardware

7. It refers to the amount of merchandise or goods sold by the business for a given
period of time.
a. Operating Expense b. Cost of Goods Sold c. Deductions d. Sales

8. Aling Coring sold 5 pieces of rugs. She bought the rugs for 20 pesos and sold it
for 35 pesos. How much is the total cost of goods sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00

9. 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

10. 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

11. Nathaniel sells bottled water in a nearby city bus terminal. Every day he can sell
30 pieces of bottled water at 20 pesos each. How much is Nathaniel’s daily sales?
a. P 900.00 b. P 800.00 c. P 700.00 d. P 600.00

12. The amount added to the cost of a product to determine the selling price is called?
a. mark-up b. discount c. mark-down d. sale

13. Lina sold all ten t-shirts for 1,500.00 pesos. Suppose she added 50.00 pesos as
mark-up price for every t-shirt. How much was the cost for every t-shirt sold?
a. P 80.00 b. P 90.00 c. P 100.00 d. P 110.00

14. It refers to goods and merchandise left at the end of operation or accounting
period.
a. Merchandise inventory, beginning c. Freight-in
b. Merchandise inventory, end d. Freight-out

15. The Total Cost and Expenses is calculated by –

a. adding cost and expenses c. adding revenue and expense
b. subtracting expenses from costs d. subtracting expense from revenue

136
Additional Activities
1. Now that you have learned how to forecast revenues and cost of the
business, investigate how these concepts are being applied by existing
businesses in your community. Using the table below, fill in the
necessary information based on your investigation.

Daily Revenue and Cost

Name of Business: _ _

Projected Projected
Volume Revenue Projected
Cost Mark-up Selling (D) (E)
per Unit % Price
Costs of
Merchandise/ Average Purchases
(A) (B) (C)
Products No. of (Daily)
(Daily)
Items Sold
(Daily)
(B)= (A x C=A+
A D E=CxD K = (A x D)
.50) B
Ex. Bag 150.00 75.00 225.00 10 2250 1500

2. Conduct an interview with two local entrepreneurs in your community.

Using the table below as guide, ask how these entrepreneurs use
forecasting revenues and costs in making decisions for the good of
their businesses.

Decisions made while

Name of Entrepreneur Nature of Business referring to Forecasted
Revenue and Costs.

1. Mr. Dela Cruz Fruit Vendor Help me determine how

many should I purchase for
next month.
2.
3.

137
Quarter 2 — Module 8
Computation of Gross Profit
What I Need to Know

As we all know, profit is a financial gain from a transaction or from a period of

investment or business activity, usually calculated as income in excess of costs or as
the final value of an asset in excess of its initial value.

It is the total revenue minus total expenses, profit is the amount of money a
business "makes" during a given accounting period. The more profit you make, the
better, as profit can be re-invested into the business or retained by the business
owners. Being able to accurately determine your business's profit is an essential part
of being able to judge its financial health. It can also help you decide how to price your
goods and services, how to pay your employees, and more.

To make your business gain more profit, begin by adding up all of the money
your business has made in a set period of time, (either, quarterly, yearly, monthly, etc.)
other sources, like products sold, services rendered, membership payments, or, in the
case of government agencies, taxes, fees, the sales of resource rights, and so on.

Note that you will need to subtract any amount of cash refunded to customers
for returns or disputes in order to find an accurate figure for your total income.

It's easier to understand the process of calculating a business's profit by

following along with an example.

Let's say that we own a small publishing business. In the last month, we sold
P20,000 worth of books to retailers in the area. However, we also sold the rights to
one of our intellectual properties for P7,000 and received P3,000 from book retailers
for official promotional materials. If these represent all of our revenue sources, we can
say that our total income is P20,000 + P7,000 + P3,000 = P30,000.

This module is divided into two lessons:

Lesson 1 – Compute for profits CS_EP11/12ENTREP-0h-j-16

Lesson 2 – Create the company’s five (5) year projected financial
statementsCS_EP11/12ENTREP-0h-j-17

139
To be able to successfully complete this module, previous knowledge in adding
and multiplying numbers will best help.

After carefully studying the contents of this module, you should be able to:

• Identify essential components in computing revenues and costs;

• Differentiate between gross profit, operating profit and net profit;
• Interpret financial ratios such as the gross profit rate, operating profit margin and
net profit margin;
• Compute actual revenues;
• Compute actual costs;
• Compute gross profit, operating profit and net profit;
• Compute the gross profit rate, operating profit margin and net profit margin;
• Create profit schedules and reports;
• Appreciate the importance of keeping track with the performance of one’s business
through the correct and honest computation and reporting of business profit; and
• Appreciate the importance of the correct computation and interpretation of
financial ratios gross profit rate, operating profit margin and net profit margin.

What I Know

Let us see what you already know about forecasting revenues and costs.
Answer the questions below.

Write True if the statement is correct and write False if you think the statement is not
correct.
1. The gross profit rate of the entrepreneurial venture is computed by
dividing the cost of goods sold by net sales.
2. The gross profit rate provides information on the cost ratio of the
business.
3. In evaluating the profitability of the entrepreneurial venture, the
evaluation must focus on the information reflected on the face of the
balance sheet.
140
4. The operating profit margin rate indicates information on the
percentage of operating expenses on the net sales.

5. Mr. Q is a practicing Doctor of Medicine. During the month of March

2019, he received Professional Fees amounting to P 1,000,000 and
otal expenses of P250,000. The net income of Mr. Q is P 750,000.
6. Profit is the money received from the customer in exchange of
products given to customer.
7. The gross profit rate of the entrepreneurial venture is computed by
dividing the cost of goods sold by net sales.
8. The gross profit rate provides information on the cost ratio of
the business.
9. One of the objectives in evaluating the gross profit rate of the
business is to determine whether the amount of the gross profit is
sufficient to cover the operating expenses.
10. The operating profit margin rate indicates information on the
percentage of operating expenses to net sales.
11 The government is not interested in financial statements since it is
not a party to any of the transactions of the business.
12. The net profit margin rate presents the general perspective of the
operating performance of the business.
13. The amount of income per peso investment can be determined by
computing the net profit margin rate.
14. In a normal situation, it is favorable for the business to have
high inventory.
15. Preparation and presentation of the financial statements of the entity
is the primary responsibility of an accountant.

141
Lesson
Computation of Gross Profit
8.1

What’s In

Let’s review what is revenue of the business. This is an important tool and
material needed in the operation of the business. It is said that revenue is the result
when sales exceed the cost to produce or manufacture goods/merchandise as well as
costs incurred in selling.

Forecast is advance information that could help us prepare and get ready for
any incoming event. Forecasting is the tool used in planning that aims to support
management or a business owner in his desire to adjust and cope with uncertainties of
the future. If anyone of us can predict that we can be rich, so it means all of us will be
rich. This fantasy is played out every day in boardrooms across the globe with the
practice of business forecasting.

It is important to have a good organization in the business to easily grow and

expand in the future.

142
What’s New

Activity 1
Read and understand the given problem.

Rodrigo is engaged in a buy – and – sell business of perfumes. He bought 10

boxes of perfumes. Each box costs P12,000.00 and contains a dozen of perfume
bottles. He is planning to sell one perfume bottle at P1,500. What is his expected profit
on the 10 boxes of perfumes?

The ultimate goal of any business whether a retail or wholesale is to earn a

profit. Getting the difference between the amount of money earned from the selling 10
boxes containing a dozen of perfume bottles and the cost of those 10 boxes gives the
profit.

In the example that I gave, answer the following questions:

1. How much profit does Rodrigo earn?
2. Is it good to engage in a business like Rodrigo’s? Yes or No?
3. What do you think of Rodrigo’s business? Is it good for a beginner?

What Is It

Computing the Gross Profit

The profitability ratios are a group of financial statements that primarily

determine the profitability of the business operation.
The gross profit rate on a product is computed as:
Net Sales xxxxxxx
Less: Cost of Sales xxxxxxx
Gross Profit xxxxxxx

143
By using the formula, the gross of XYZ Trading in the year 2017
is as follows:

Net Sales P 734, 000.00

Less: Cost of Sales 577, 000.00
Gross Profit P 157,000.00

Profit is the gross income. The amount of gross profit provides information to
the entrepreneur about revenue earned from sales.

The term cost refers to the purchase price of the product including the total
outlay required in producing it.
The gross profit margin is computed as follows:
Gross Profit Rate = Gross Profit
Net Sales

The gross profit rate measures the percentage of gross profit to sales, indicating
the profit that the business realizes from the sale of the product.

The gross profit rate of XYZ Trading for the year 2017 is computed as follows:

46,900.00
gross profit rate =
734,000.00

The gross profit rate may signal to the entrepreneur that the amount of margin
on sales is 21.39%. This rate will be used to determine whether the amount of gross
profit can cover the operating of the business. Since the gross profit rate of XYZ
Trading is 21.39%, the cost ratio to sales will be 78.61%. This information will help the
entrepreneur in assessing whether the cost is too high or too low. Any product with a
very high cost will not become competitive in the market.

144
The gross profit rate will also help the entrepreneur set the selling price.
Operating Profit Margin Rate

The operating profit margin is the excess of gross profit from operating
expenses.
Gross Profit xxxxx
Less: Operating Expenses xxxxx
Operating Profit Margin xxxxx

The operating profit margin is the second level of revenue in the income
statement. At this stage, not only is the cost of buying or making the product that has
been deducted is included but also the operating expenses. These are expenses
incurred during a particular period only, and are not expected to provide benefits to
any future period. The operating expenses are also period costs.

In case there are no financing charges like interest, expenses, and income tax,
the amount of the operating profit margin is equal to the net income .

Gross Profit P 157,000.00

Less: Operating Expenses 90,000.00

Operating Profit Margin P 67,000.00

This information states that the business realized an income of P 67,000.00

during the year after deducting the cost and operating expenses from the sales
made.

Operating Profit Margin

Operating Profit Margin Rate =
Net Sales
By applying
Operating Profit Margin Rate = 67,000.00
734,000.00

145
The operating profit margin of the business measures the percentage of profit
available after deducting the cost of sales and operating expenses of the business. A
higher operating profit margin is favorable to the business.

Net Profit Margin Rate

Operating Profit Margin xxxxxxx

xxxxxxx
Add: Interest Income
Total
Less: Interest Expense xxxxxx
Income Tax xxxxxx xxxxxx
Net Profit margin xxxxxx

The income statement is the net profit margin and the third level in the revenue.
The business is only given consideration like interest expense and income tax.
Operating Profit Margin P67,000.00
Less: Income tax 20,000.00
Net Profit Margin P46,900.00

The income statement of XYZ Trading does not reflect any data on interest
expense. Only income tax has been deducted from the operating profit margin.

Net Profit
Net profit margin rate =
Net Sales

By applying the formula, the profit margin of XYZ

46,900.00
Net profit margin rate =
734,000.00

XYZ Trading appears to have earned 6.39% of its total sales of P734,000 during
the year. This profits rate must be compared with those of other similar businesses
within the industry.
146
Analyzing the Liquidity Status of the Business

Liquidity Ratios

Current Ratio = Current assets / Current Liabilities

Quick Ratio = (Current Assets – Inventories) / Current Liabilities
Current liabilities= (Cash and Equivalents + Marketable Securities + Accounts Receivable)

The quick ratio measures its short-term obligations with its most liquid assets
and therefore excludes inventories from its current assets.

. Financial statements are important in a company management as a means of

communicating past successes as well as future expectations. The financial statement
records all the operating results such as sales, expenses and profits or losses.

Return of Investment (ROI)

The Return of investment (ROI) measures the amount of net income per peso
invested to the business.

The formula to compute ROI is as follows:

The average total asset is calculated by dividing the sum of the total assets at
the beginning and end of the period.

147
Table 1

Projected Five Year Balance Sheet

Fit Mo'to Ready to Wear Online Selling Business
Year 1 Year 2 Year 3 Year 4 Year 5
ASSET
Cash
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total Assets
337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Liability - - - - -
Owner’s
equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total
Liabilities
and Owner's
Equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89

Table 1
Projected Five Year Income Statement
Fit Mo'to Ready to Wear Online Selling Business
Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 1,545,673.95 1,622,957.64 1,704,105.53 1,789,310.80 1,878,776.34

Cost 1,213,275.38 1,273,939.15 1,337,636.11 1,404,517.91 1,474,743.81

Gross Profit
Before tax 332,398.56 349,018.49 366,469.42 384,792.89 404,032.53

Yearly increase in revenue is assumed at 5%

Yearly increase in cost is assumed at 5%

As a future entrepreneur, one should always remember that nothing is

permanent in the field of entrepreneurship. What is applicable to one entrepreneur
may not be applicable to another. Certain things may happen to one entrepreneur but
may not happen to another.
148
Entrepreneurship should be practiced not as a science but as an art. Creativity
should always be applied by an entrepreneur through regularly evaluating the market
and the environment and responding to the changes in them.

The owner of an ordinary small business has the freedom to manage and
operate. Ideally, he/she prefers business activities which are done easily. However,
the entrepreneur has to perform the entrepreneurial activities correctly regardless of
whether they are undertaken easily or not. The importance in entrepreneurship is that
the business activities are performed correctly.

What’s More

Compute the Gross Profit

Answer the given problem.
1. Annie bought one dozen smartphones for P200,000.00 with a discount of 5%.
She sold half a dozen at a price of P18,000.00 per unit. However, a new model
of smartphones became available in the market, so she sold the remaining half
dozen @ P12,000.00 each unit. What was her profit or loss?

Compute the following requirements:

a. Gross profit rate
b. Operating profit margin rate
c. Net profit margin rate
d. Return on Investment

Now ask yourself the following questions:

1. Is creativity present in the operation of ordinary small businesses along

the streets and highways and in your neighborhood? Why do you say
so?

2. Do you consider the business practices of small business owners a

form of entrepreneurship?

149
What I Have Learned

The profitability and ratios are a group financial statement ratios that primarily
determine the profitability of the business operation. They provide information on the
efficiency of resource utilization.

The gross profit represents the difference between net sales and cost of sales
of the entrepreneurial venture during a given period. It is computed as follows:
Net Sales xxxxxx
Less: Cost of Sales xxxxxx
Gross Profit xxxxxx

By using the formula, the gross profit of XYZ Co., in the year 2017 is
computed as follows:

Net Sales P734,000.00

Less: Cost of Sales 577,000.00
Gross profit P 157,000.00

Profit is determined by:

• the money you get from sales
• the cost of stock – if you're selling a product
• all the expenses you incurred
Income earned by the business are sales and gross profit.
Commissions, discounts, fixed expense are business expenses.

How to Increase your Sales

❖ Improve profit by looking at the money you earn from sales, and increase:
o The number of customers
o The volume of goods or services existing customers to buy
o The sales price

150
What I Can Do
Conduct an interview of at least three (3) successful business people in your locality,
use the following questions as your guidelines:

1. What motivated him to start a business?

2. What is the nature of his/her business?

3. How much capital was involved?

4. How many years has the business been existing?

5. Did he/she consider the population of the community?

6. How much gross profit did he/she earn for the first year of operation?

151
Assessment

How much did you understand the lessons in this module? Answer the following
questions.

Write True if the statement is correct and write False if you think the statement is not
correct.

1. The gross profit rate of the entrepreneurial venture is computed by

dividing the cost of goods sold by net sales.

2. The gross profit rate provides information on the cost ratio of the
business.

3. In evaluating the profitability of the entrepreneurial venture, the

evaluation must focus on the information reflected on the face of the
balance sheet.

4. The operating profit margin rate indicates information on the

percentage of operating expenses on the net sales.

5. Mr. Q is a practicing Doctor of Medicine. During the month of March

2019, he received Professional Fees amounting to P 1,000,000 and
total expenses of P250,000. The net income of Mr. Q is P 750,000.

6. Profit is the money received from the customer in exchange of

products given to customer.

7. The gross profit rate of the entrepreneurial venture is computed by

dividing the cost of goods sold by net sales.

8. The gross profit rate provides information on the cost ratio of

the business.

9. One of the objectives in evaluating the gross profit rate of the

business is to determine whether the amount of the gross profit is
sufficient to cover the operating expenses.

10. The operating profit margin rate indicates information on the

percentage of operating expenses to net sales.

11 The government is not interested in financial statements since it is

not a party to any of the transactions of the business.

12. The net profit margin rate presents the general perspective of the
operating performance of the business.

13. The amount of income per peso investment can be determined by

computing the net profit margin rate.

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14. In a normal situation, it is favorable for the business to have
high inventory.

15. Preparation and presentation of the financial statements of the entity

is the primary responsibility of an accountant.

Additional Activities

After learning how to compute the gross profit, try solving the given problems
below:

1. A watch store owner decided to offer 20% discount for a particular brand of
watch that sells at P35,000.00. By doing so, his average sales increased from 5
watches to 12 watches a day. If he bought one watch at a price of P22,000.00
from the supplier, by how much was his daily profit increased or decreased by
offering such discount on the watch?

2. Michelle went to Baguio and bought 20 jars of strawberry jam for P3,500.00 with
15% discount. When she got back to Manila, she sold 10 of the jars for a total of
P1,800.00 and the rest as P185.00 each. How much profit did Michelle gain?

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Quarter 2 — Module 9
Business Implementation
What I Need to Know

In this module, you will be able to practically implement your newly developed
Business Plan, in which case, will help your target business most likely to succeed,
because this is where you will actually operate the business; thus, selling your
product/service to the potential customers.
You are expected to operate your own business and keep your business
records to monitor the progress of your business operation.

This module covers the following learning competencies:

• Implementing the business plan
• Operating the business
• Selling the product
• Identifying reasons for keeping business records

At the end of this module, you will be able to:

1. Identify the purposes of keeping business records.
2. Value the importance of keeping accurate business transactions.
3. Prepare an income statement of your business operation.

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What I Know

Before starting with this module, let us see what you already know about
implementing a business plan. Answer the questions below.

Instruction: Read the statements carefully then write True if the statement is correct
& write False if you think the statement not correct.

You go to the office of the Department of Trade and Industry (DTI)

1. if you will register your corporation.
The office to visit when registering your solely owned business is
2.
the Securities and Exchange Commission (SEC).
You go to the Bureau of Internal Revenue when you get
3.
y o u r Tax Identification Number (TIN).
Employers are the only one to pay their contribution at the Social
4.
Security System (SSS).
You cannot start your business without a consultant.
5.
Record keeping is not necessary in a business operation.
6.
Record keeping is beneficial to the owner.
7.
The objective of the businessman should be clear.
8.
Tasks before starting the business should have a time allotment.
9.
Records are sources of documents.
10.
Professional advices are necessary before starting the business.
11.
Professional advice is not needed during the business operation.
12.
Bookkeeping is only important to the accountant.
13.
Record keeping can measure the profit and performance of the
14.
enterprise.
Recordkeeping can be both physical and electronic.
15.

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What’s In

Before you proceed, let us first recall our previous lesson.

Profit is the amount you gain after selling your product. In computing your
profit, you just simply follow this formula:
Sales - Cost of Goods Sold = Gross Profit
The gross profit represents the difference between net sales and cost of sales.
Variable costs are those things that change based on the amount of product being
made and are incurred as a direct result of producing the product.

Variable costs include:

1. Materials used
2. Direct labor
3. Packaging
4. Freight
5. Plant supervisor salaries
6. Utilities for a plant or a warehouse
7. Depreciation expense on production equipment
8. Machinery

Fixed costs generally are more static in nature. They include:

1. Office expenses such as supplies, utilities, a telephone for the
office, etc.
2. Salaries and wages of office staff, salespeople, officers and owners
3. Payroll taxes and employee benefits
4. Advertising, promotional and other sales expenses
5. Insurance
6. Auto expenses for salespeople
7. Professional fees
8. Rent

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What’s New

Identify the services offered by the following offices to you, as an entrepreneur.

1. Department of Trade and Industry (DTI)
2. Securities and Exchange Commission (SEC)
3. Bureau of Internal Revenue (BIR)
4. Mayor’s Office
5. Social Security System (SSS)
6. Philhealth
7. Pag-ibig Fund

What is it?

Instruction: Write an essay answering the following guide questions.

1. As an entrepreneur, is it important to know the services offered by the offices

mentioned above?
2. If your answer is YES, in what way do their services become important to
you?

3. If your answer is NO, what makes their services unnecessary to you?

4. Do you think a business can last without availing the services of the said
offices? Why? Or why not?

RUBRIC FOR ESSAY

The content was well –
thought of, guide
Content 4
questions were
thoroughly answered.
The paper was well-
Organization written with ideas easily 3
conveyed to readers.
Points are thoroughly
Development 3
developed
TOTAL 10

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Guidelines for Successful Business Plan Implementation:

1. Objectives – the entrepreneur should have a clear idea on what is his purpose of
putting up his enterprise.
2. Tasks – this means that the entrepreneur must know what are the tasks he has to
perform in order to realize his objectives.
3. Time allocation – This means that the entrepreneur should have a time table or a
schedule to follow for every task so that the tasks will be accomplished timely and
he can realize his objectives.
4. Progress – This means the entrepreneur should monitor the development of the
tasks and the accomplishment of the objectives.

In operating a business, the entrepreneur should first consult professionals for

advices, like accountants or consultants from small enterprises. In your case, you can
consult your teacher in Entrepreneurship or anyone you think who could help you.
The following are the basic requirements to start a business in the Philippines:
• Securities and Exchange Commission (SEC) Registration - for partnership
or Corporation
• Department of Trade and Industry (DTI) Registration - for your business
tradename
• Mayor’s Business Permit - for getting the license to operate in the city or
municipality and payment of your local business taxes

• Bureau of Internal Revenue (BIR) Registration - for getting TIN, official

receipts and invoices, registering your books of accounts and paying your
national Internal revenue taxes
• SSS, PhilHealth, and Pag-Ibig Fund registration - for registering yourself or
your company as an employer and for remitting your employees’ contribution
together with your employer’s share

Other steps to follow before operating a business are as follows:

1. Set up an accounting system or hire an accountant. Knowing how the

business is doing financially is important for planning and survival.
2. Advertise the business. No one will buy the products or services if customers
do not know that the company exists. You can make use of the social media.

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3. Secure insurance for the business. Liability insurance protects the business
in the event of litigation. Consider life and disability insurance, health insurance
and fire insurance when you are leasing an office or storefront.

Keeping Business Records

Good record keeping can help protect the business, measure the performance
and maximize profit.
Records are the source documents, both physical and electronic, that specify
transaction dates and amounts, legal agreements and private customer and business
details.
Developing a system to log, store and dispose of records can benefit the
business. A systematic recording allows you to:
A. plan and work more efficiently;
B. meet legal and tax requirements;
C. measure profit and performance;
D. protect your rights; and
E. manage potential risks.

What’s More

Compute the Gross Profit

Try to look around in your community and identify at least three (3) oldest
existing businesses and find time to ask the owner/s the following questions:

1. How did you start your business?

2. In your opinion, is it important to have a business plan?
3. What were the challenges you encountered in your years of operation?
4. How did you overcome those challenges?

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What I Have Learned

Implementing the Business Plan is not that easy. It needs to be registered

to make it legal and record keeping gives a lot of benefits to the enterprise.

What I Can Do

You are going to implement your business for one and a half month. Follow the
Business Plan that you have presented.
RUBRICS FOR THE BUSINESS PLAN IMPLEMENTATION

Feasibility The business is operated 50

according to the plan.
Bookkeeping The records are properly 40
kept and accounted for.
The business is gaining
as to its projected
Profitability 10
financial plan.
TOTAL 100

Assessment

Now that you are finished accomplishing the module, let us check what you have
learned. Answer the questions given below by encircling the letter of the correct
answer.

1. Which office will you go to register your single-owned business?

A. SEC C. BIR
B. DTI D. Mayor’s Office

2. Which office do you visit to register a partnership or corporation?

A. SEC C. BIR
B. DTI D. Mayor’s Office

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3. To secure a Tax Identification Number (TIN), which office will you go?
A. SEC C. BIR
B. DTI D. Mayor’s Office

4. SSS, Philhealth and Pag-ibig fund contributions are made by _ .

A. employees only C. both Employees and Employers
B. employers only D. none of the choices

5. Which of the following is not a step to follow before operating a business?

A. Register your business
B. Set up an accounting system
C. Advertise the business using Facebook
D. Selling the product

6. Which of the following is true?

A. Good record keeping is not important to the business owner.
B. Good record keeping is important only to the accountant.
C. Good record keeping gives benefits to the enterprise.
D. Good record keeping gives no importance at all.

7. Which of the following is NOT a benefit to the enterprise?

A. It allows the entrepreneur to plan and work more efficiently.
B. It allows the entrepreneur to meet legal and tax requirements.
C. Can check if the business is doing good.
D. It cannot protect the rights of the owner.

8. The objectives of the entrepreneur should be .

A. specific and clear
B. specific and long term
C. short and blurred
D. long and not specific

9. The tasks before operating the business must be .

A. specified to be accomplished by the owner alone
B. in detail so that the owner will know what to do
C. kept by the owner for future reference
D. none of the choices

10. The tasks to be accomplished before operating the business should have:
A. design C. time allotment
B. decoration D. measurement

11. Which of the statements is true?

A. Before starting a business, the entrepreneur may not consult a
professional for advice.
B. Before starting a business, the entrepreneur should consult a
professional for advice.
C. Before starting a business, the entrepreneur must start selling when
there are available buyers.
D. None of the choices
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12. Registering your business trade name is done in the office of
A. SEC C. Mayor’s Office
B. DTI D. Philhealth Office

13. The sources of documents are called

A. income statements
B. balance sheets
C. records
D. record keepings

14. Which of the following is not a benefit of record keeping?

A. It will not help in managing potential risks.
B. It will measure profit and performance.
C. It will protect the rights of the owner.
D. It will not let you know how much you are earning.

15. Which of the following statements is true?

A. Professional advice is only needed before starting the business.
B. Professional advice is needed all throughout the life of the business.
C. Professional advice is made only by consultants.
D. Professional advice is only a waste of money.

Additional Activities

Prepare a journal entry of all your business transactions. Give the benefits you
get from keeping all your records.

SAMPLE JOURNAL ENTRY

DATE PARTICULARS REF DR CR
June 20 Cash 10,000
Mercado Capital 10,000
To record cash investment

June 26 Photocopying Equipment 30,000

Mercado, Capital 30,000
To record investment of
photocopying eqpt

June 27 Mercado Capital 50,000

Loan Payable 50,000
To record loan payable to be
assumed by
the business

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Quarter 2 — Module 10
Bookkeeping
What I Need to Know

Welcome to this module. In this module you will learn how to record business
transactions, prepare journal entries, post them to the general ledger, make some
adjustments if necessary and prepare trial balance report. This is your tool to keep
track of the operations of your business.

This module is divided into two lessons:

Lesson 1 – Performing Key Bookkeeping Tasks

Lesson 2 – Identifying where there is profit or loss for a business

After reading this module, you should be able to:

1. Understand the basic concepts of bookkeeping;

2. Apply the skills by performing key bookkeeping tasks; and
3. Identify whether the business is profitable or not.
To achieve the above objectives, it is suggested that you have to do the following:

• Read and understand the texts carefully.

• Follow the directions and/or instructions in the activities and exercises
diligently.
• Answer all the given test and activities.

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What I Know
Before starting with this module, let us evaluate what you already know about
bookkeeping by answering the pre-assessment questions below.
PRETEST – Multiple Choice: Identify the correct answer among the given choices.
In your answer sheet, write the letter only.
1. A source document evidencing those orders have been placed by the customer
waiting to be served by the supplier.
A. Purchase request C. Purchase order
B. Purchase invoice D. Purchase check
2. A source document evidencing those goods have been delivered by the supplier
to the customer.
A. Supplier’s sales invoice C. Customer’s sales invoice
B. Vale slip D. Customer’s delivery receipt
3. A source document issued by the supplier acknowledging that full payment has
been received from the customer.
A. Official receipt C. Delivery receipt
B. Purchase receipt D. Receiving report
4. All of the following are examples of source documents, except
A. Check B. Invoices C. Contract D. Journal
5. A source document which shows that the customer has already made partial
payment to the supplier through issuance of.
A. Check B. Voucher C. Official receipt D. Sales invoice
6. An example of asset that can be used in the business for a long period of time,
usually more than a year.
A. Inventories B. Computer C. Receivables D. Cash
7. A type of business that is purely engaged in providing all types of service activities
such as medical or legal services.
A. Service business C. Manufacturing business
B. Merchandising business D. Trading business
8. A type of business that is engaged in buying and selling of food products such
as grocery/convenient stores.
A. Service business C. Manufacturing business
B. Merchandising business D. Forex Trading business
9. Referred to as the book of original entry
A. Ledger C. Accounts Receivable Ledger
B. Journal D. Purchase Journal
10. Referred to as the book of final entry
A. General Ledger C. Accounts Receivable Ledger
B. General Journal D. Purchase Journal

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Lesson
Performing Key Bookkeeping Tasks
10.1

What’s In

In the previous lessons, you learned how to prepare a business plan, operate
the business, sell the product, and understood the importance of keeping business
records. Also, you were able to define, understand and compare the organization’s
various departments such as Operation and Administration, Marketing, Production and
Logistics, Finance, etc.

In the succeeding lessons, you will be able to explore by learning the tasks of
a bookkeeper in recording and keeping financial records updated.

What’s New

Activity 1: Getting to know your community’s businesses

A. List down at least 3 businesses that are present in your community.
(ex. sari-sari store).
B. Interview a business or store owner listed in Item A using the
following guide questions:
1. When do you record your sales and expenses?
2. Where do you record your sales and expenses?
3. How do you record your sales and expenses?
4. When do you compute your income?
5. How do you compute your income?
6. Did you employ the services of a bookkeeper? Why not?
7. What are your bases when making business decision?
(decisions like buying more goods to sell and the likes).

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What Is It

Definition of Terms
TERM MEANING
The process of recording business transactions in a
systematic and chronological manner. It is systematic
Bookkeeping because it follows procedures and principles. It is
chronological because the transactions are recorded in order
of the date of occurrence.
The person who is in-charge to record, maintain and update
business records from all sorts of financial transactions using
Bookkeeper
account title. The bookkeeper uses the Book of Accounts to
record the business transactions.
The book of accounts is composed of the Journal and
Book of Accounts
Ledger.
Journal Referred to as the book of original entry
Ledger Referred to as the book of final entry.
is the most basic journal which provides columns for date,
General Journal account titles and explanations, folio or references and a
separate column for debit and credit entries.
is a group of all accounts that can be found in the chart of
accounts. These accounts will be reflected in the trial balance
General Ledger
as a summary of all financial activities that have taken place as
recorded in the general journal and subsidiary ledgers.

Depicted in Figure 1 below is a sample format of a general journal:

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Figure 1 – General Journal

Sample General Journal Transaction and Entry:

On June 25, 2020, ABC Laundry Co. rendered laundry services to JJV Hotel in
Makati for P5,000. The customer paid in cash.

GENERAL JOURNAL PAGE 1

POST
.
CREDI
DATE PARTICULARS REF. DEBIT T
1 June 25 Cash 5,000
2 Service Income 5,000
To record the receipt of cash from JJV
3 Hotel for the services rendered

Depicted in Figure 2 below is a sample format of a general ledger:

Figure 2 – General Ledger

is a group of accounts directly associated with the general

ledger. This record is created to maintain individual accounts
Subsidiary
for customers and vendors whose cash is not being used as
Ledger
a medium of exchange when purchasing or selling
merchandise.

169
Depicted in Figures 3 and 4 below are sample formats of a subsidiary ledger
showing Accounts Receivable and Accounts Payable respectively:

Accounts Receivable

Buyer/Customer: Veggies Trading 11

Figure 3 – Accounts Receivable Ledger

Figure 4 – Accounts Payable Ledger

The accounts receivable ledger is a sub-ledger which records

all credit sales made by a business. It is useful for
Account segregating into one location a record of all amounts
Receivable invoiced to customers. A typical transaction entered into the
accounts receivable ledger which records all account
Ledger
receivables, followed at a later date by a payment
transaction from a customer that eliminates the accounts
receivable. More importantly, it is a subsidiary ledger which
records a customer’s accounts in the business.
An accounts payable ledger contains the detail for all invoices
received from suppliers. This ledger is used as a subsidiary
ledger, from which summary-level information is periodically
Account Payable
posted to the general ledger. Having a separate accounts
Ledger payable ledger keeps a large amount of detailed
payables transactions from cluttering up the general ledger.
The left-hand side entry also known in accounting as “Value
Received.” When cash or non-cash items are received, the
Debit said cash or non-cash items must be recorded in the debit
column. This means that the debit balance has increased.
The right-hand side entry also known in accounting as “Value
Parted With.” When cash or non-cash items are given, the said
Credit
cash or non-cash items must be recorded in the credit column.
This means that the credit balance has increased.

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The Rules of Debit and Credit

In the process of journalizing business transactions, the rules of Debit and Credit
are essential to ensure accurate recording and sound decision making. Debit is
abbreviated as DR while CR for Credit. Further, it is deemed a requirement that the
bookkeeper should be able to master the normal balance of each account title being
used in the process of recording.

The following steps will be undertaken in determining account balances for every
account title such as cash, account receivable, etc.:
1. Add all the debit side to generate total debit
2. Add all the credit side to generate total credit.
3. Subtract total debit to the total credit.
4. Determine the balance of each account.
The most convenient and fastest way of
posting journal entries to the ledger is by
way of using “T” Account. A T- Account
is divided into two sides. The left-hand
side is called the debit side and the
right-hand side is called the credit side.
T- Account
The left-hand or debit side shows the
value received while the right-hand side
shows the value parted with. This is
called T Account because it resembles
the capital letter “T.” An account title is
written above the T- account.
Depicted in figure 5 below is a T-account and its description:

ACCOUNT TITLE

Left-Hand Side Right-Hand Side

or Debit Side or Credit Side
is for is for
VALUE VALUE
RECEIVED PARTED WITH

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Figure 5: T - Account

Sample of General Journal entry and T- Account:

GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
1 Dec. 1 Cash 200,000
2 Service Income 200,000
To record the receipt of cash for the
3 services rendered
Posting the journal entry to the T – Account:

To strengthen your understanding about posting of journal entries to the general

ledger, it is suggested to create T– Account and label them with the account title and
group them according to Assets, Liabilities, Owner’s Equity, Revenue and Expense.

It is the first account of the five major accounts which refers to

resources with economic value that an individual, corporation,
or country owns or controls with the expectation that it will
provide a future benefit. An asset represents an economic
Asset resource for a company or represents access that other
individuals or firms do not have. An economic resource is
something that is scarce and has the ability to produce
economic benefit by generating cash inflows or decreasing
cash outflows.

172
It is the second account of the five major accounts which refers
to something a person or company owes, usually a sum of
money. Liabilities are settled over time through the transfer of
economic benefits including money, goods, or services.
Liability
Liabilities include loans, accounts payable, mortgages,
deferred revenues, and accrued expenses. In general, a
liability is an obligation between one party and another not yet
completed or paid for.
It is the third account of the five major accounts which refers to
as shareholders' equity (or owner’s equity for privately held
Owner’s Equity companies). Owner’s equity is a degree of residual ownership
in a firm or asset after subtracting all liabilities associated with
that asset.

It is the fourth account of the five major accounts which refers

to money brought into a company by its business activities.
Revenue
Revenue is commonly known as service income or fees,
sales, and sales discount.
It is the fifth and last account of the five major accounts which
refers to the cost of operations that a company incurs to
Expense generate revenue. Common expenses include payments to
suppliers, employee wages, factory leases, and equipment
depreciation.

Depicted in Figure 6 below is a matrix of normal debit and credit balances

of the Five Major Accounts:

ACCOUNT TYPE DEBIT CREDIT

Assets
Liabilities
Owner’s Equity
Revenue
Expenses

Figure 6 - Matrix of Normal Debit and Credit Balances

of Five Major Accounts

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In order to fully understand the concept of debit and credit balances, depicted
in Figure 7 below is a matrix of normal debit and credit balances under each of the five
major accounts:

Figure 7 - Matrix of Normal Debit and Credit Balances

of Sub-Accounts

Now, let us go through the concept of bookkeeping by recording and posting

financial transactions using the books of accounts and T Accounts, respectively.

174
Illustration on Rules of Debit and Credit

Acquiring Equipment or Supply:

XYZ Company purchased ten (10) latest models of Samsung cellular phones
for the company’s staff to be given as Christmas giveaways, for a total amount of P
350,000.00.
Entry: Accounttitle Amount
Debit (Value Received) Samsung Cellphone P350,000.00
Credit (Value Parted With) Cash P350,000.00

Analysis: The debit side represents the item (Samsung Cellphone) with the amount
of P350,000.00 received in exchange of the item given up. The credit side represents
the item (Cash) with amount (P350,000.00) given up.
In the books of XYZ Company, the nature of acquisition of cellphones is for
Christmas giveaways. The entry debited to Christmas Giveaways must be charged to
an expense account. Thus, it will increase the Expense-Christmas Giveaways balance
because the latter’s normal balance is debit. Meanwhile, the Asset-cash will decrease
because in this transaction, Cash was credited.

Investing Capital in the Business:

Ms. Izabelle Neri, a new graduate in business management started a
merchandising business with trade name “The IN Store”. She put up a total cash
amounting to P500,000.00 to construct an office and acquire necessary equipment
and supplies.
Entry: Account Title Amount
Debit (Value Received) Cash P500,000.00
Credit (Value Parted With) Ms. Neri, Capital P500,000.00

Analysis: The debit side represents the item (Cash) with amount (P500,000.00)
received in exchange of the item given up. The credit side represents the purpose
(Capital) of the transaction with the amount (P500,000.00) given up.
In the books of XYZ Company, the entry debit to cash will increase the cash
balance because the cash itself has a normal debit balance. Consequently, the entry
credit to Capital Account – Neri, Capital will increase the capital balance because
the latter’s normal balance is credit.

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Sales/ Service Income Transactions:
Goblin Computer Shop, rendered computer repair services to DN University
amounting to P10,000 for cash.
Entry: Account Title Amount
Debit (Value Received) Cash P10,000.00
Credit (Value Parted With) Service Income P10,000.00

Analysis: The debit side represents the item (Cash) with amount (P10,000.00)
received in exchange of the item given up. The credit side represents the purpose
(Sales/Service) of the transaction with amount (P10,000.00) given up.
In the books of Goblin Computer Shop, the entry debit to cash will increase the
cash balance because the cash itself has a normal debit balance. Consequently, the
entry credit to Revenue - Service Income will increase the revenue balance because
the latter’s normal balance is credit.

Purchase on Account Transaction:

Goblin Computer Shop purchased office supplies amounting to P5,000 from ABC
Corp. on account. The account will be paid next month.
Entry: Account Title Amount
Debit (Value Received) Office Supplies P5,000
Credit (Value Parted With) Accounts Payable 5,000

Analysis: The debit side represents the item (OS) with amount (P5,000) received in
exchange of the promise to pay. The credit side represents the nature (credit) of the
transaction given up.
In the books of Goblin Computer Shop, the entry debit to Office Supplies will
increase the Asset-Office Supplies balance because the office supplies itself has a
normal debit balance. Consequently, the entry credit to Liability-Accounts Payable
will increase the liability balance because the latter’s normal balance is credit.

Trial Balance
Trial balance is a list of all ledger accounts with closed or final balances on a
certain period arranged according to the assets, liabilities, capital, revenue and

176
expense. The debit and credit columns must be equal in total amount. This is the first
report prior to financial statement preparation.

Bookkeeping Practice Set 1: Identifying and recording a business

transaction using the General Journal

Directions: Below are business transactions of a service-type business. All

transactions were already recorded in the general journal. All you have to do is to follow
the process and study how the transactions are being recorded in the general journal
by means of journal entry applying the rules of debit and credit. The account titles used
in the journal entries are found in the chart of accounts below.
Depicted in Figure 8 below is the chart of accounts of Alpha Laundry Services.

Figure 8 – Chart of Accounts

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Let’s Begin!

Mr. Denver Ambrose, a retired public school teacher, started his laundry
business in the beginning of June 2018. He used all of his savings to start a “coin-
operated” laundry business. He named it Alpha Laundry Services (ALS). The following
are the business transactions for the month of June 2018, the first month of business
operation:

1. June 1, 2018 - Mr. Ambrose invested P 200,000.00 cash in his newly opened Alpha
Laundry System business.

Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
1 June 1 Cash 200,000.00
2 Mr. A Capital 200,000.00
To record the initial Capital
3 investment of Mr. A.

2. June 2, 2018 - Mr. A hired his former classmate, Doree Dy, to be the Laundry
Operator of ALS for a fixed monthly salary of P10,000.00. The operator will be paid
every quencina.
EXPLANATION: No entry will be made in this transaction because there was neither
inflow or outflow of cash or an exchange of assets that have monetary value.

3. On June 5, 2018 – Alpha Laundry Systems purchased laundry equipment for cash,
P150,000.00
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
4 June 5 Laundry equipment 150,000.00
5 Cash 150,000.00
To record the acquisition of
6 Laundry equipment

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4. On June 6, 2018 – Alpha Laundry Systems paid cash in advance for the 1-year
insurance coverage of laundry equipment amounting to P6,000.00. Monthly
insurance expense will be recognized for each month’s end report.

Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
7 June 6 Prepaid Insurance 6,000.00
8 Cash 6,000.00
To record the prepaid Insurance for the
9 Laundry equipment

5. On June7, 2018–Alpha Laundry Systems bought supplies for laundry amounting to

P10,000.00. The supplies bought are laundry consumables such as detergent
powder, soap bar and fabric softener. Monthly inventory will be conducted to
determine unused supplies and will be recognized for each month end report.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
10 June 7 Laundry supplies 10,000.00
11 Cash 10,000.00
To record the acquisition of
12
laundry consumables

6. On June 15, 2018 – Alpha Laundry Systems paid P4,750 cash for salary of laundry
operator.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
13 June 15 Salaries and wages 4,750
14 Cash 4,750
To record the payment of Laundry
15
operator’s salary

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7. On June 16, 2018 – Alpha Laundry Systems received P25,000.00 cash for laundry
services rendered to MZ Hotel.

Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
16 June 16 Cash 25,000.00
17 Laundry Income 25,000.00
To record the payment received from
18
MZ Hotel.

8. On June 17, 2018 – Alpha Laundry Systems rendered service to Argon Hotel
amounting to P45,000.00. Argon promised to pay on June 20 of the same year.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
19 June 17 Accounts Receivable 45,000.00
20 Laundry Income 45,000.00
To record the service rendered to Argon
21
Hotel

9. On June 18, 2018, Alpha Laundry Systems purchased office supplies from Ku
Enterprises amounting to P2,000.00 on account. ALS will pay it on June 25 of the
same year.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
22 June 18 Office supplies 2,000.00
23 Accounts Payable 2,000.00
To record the acquisition of Office
24 Supplies on account from Ku
Enterprises

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10. On June 20, 2018, Alpha Laundry Systems collected payment from Argon Hotel.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
25 June 20 Cash 45,000.00
26 Accounts Receivable 45,000.00
To record the full payment from Argon
27
Hotel

11. On June 25, 2018, Alpha Laundry Systems paid in full the amount owed to Ku
Enterprises.

Journal Entry:
GENERALJOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
28 June 25 Accounts Payable 2,000.00
29 Cash 2,000.00
To record the full payment of account to
30
Ku Enterprises

12. On June 27, 2018, Alpha Laundry Systems paid electric bill for the month
amounting to P1,000.00 in cash. The payment is charged to Utility expense
account.

Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
31 June 27 Utilities expense 1,000.00
32 Cash 1,000.00
To record the payment Electricity for the
33
month

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13. On June 30, 2018, Alpha Laundry Systems paid a month’s transportation expense
amounting to P1,300.00.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
34 June 30 Transportation expense 1,300.00
35 Cash 1,300.00
To record the payment of transportation
36
for the month.

14. On June 30, 2018, Alpha Laundry Systems paid P5,000 cash for salary of laundry
operator.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
37 June 30 Salaries and Wages 5,000.00
38 Cash 5,000.00
To record the payment Laundry
39
operator’s salary.

15. On June 30, 2018, Alpha Laundry Systems paid P7,500 cash for the month’s rent
for laundry space.
Journal Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
40 June 30 Rent expense 7,500.00
41 Cash 7,500.00
To record the payment of rent for
42
Laundry space.

The total debit and credit columns of the general journal should always be
equal. Otherwise, the general journal balances will affect overall accuracy of the entire
financial report. The error should be properly corrected before the next step in the
recording process takes place.

182
Bookkeeping Practice Set 2: Posting journal entries to the General Ledger using
T - accounts.

Directions: In this activity, you are supposed to do the posting of general journal
entries to the general ledger using the T-Accounts technique. The
following are suggested activities before posting journal entries to T-
Accounts:
1. Group account titles according to the Five Major Accounts.
2. Determine the normal balance of each account title by referring to the
normal balance matrix.
3. Record transactions in sequential order or apply the “First-entry, First-
record” system.
4. After all journal entries are recorded, compute the debit and credit
totals of all accounts. Compute for the running balance.
Example: 1) Cash account (normal balance is debit):
Total Cash-Debit P270,000.00
Less: Total Cash-Credit 187,550.00
Outstanding Cash Balance P 82,450.00
=========
2) Laundry Income/revenue (normal balance is credit):
Total Accounts Payable-Credit P 2,000 .00
Less: total Accounts Payable-Debit 2,000.00
Outstanding Accounts Payable Balance P 0
=========

After performing the T-Accounts, outstanding balances of each account under

Assets, Liabilities, Capital, Revenue/Income and Expenses can now be determined.
Given below are T–Accounts for all ledger accounts group according to the five major
accounts.

ASSETS

183
LIABILITIES OWNER’S EQUITY

REVENUE EXPENSE

Bookkeeping Practice Set 3: Preparing Trial Balance

Directions: In this activity, you are tasked to prepare a trial balance for ALS. The
period covered is June 2018. Use the T–Account presented in Bookkeeping Practice
Set 2.
The following are suggested activities in preparing trial balance report:
1. Pick up all account balances of cash, accounts receivable up to the last
account.
2. Copy them in the designated account title in the trial balance report (un-
adjusted trial balance) following its account normal balances.
3. Compute for the total debit and credit balances. The debit amount should
be equal to the credit.

184
It should be noted that all transactions have already been recorded in the
general journal and general ledger. All you have to do is to follow the process and
study how the transactions are being recorded in the working paper to prepare the
Trial Balance report by applying the rules of debit and credit.
Depicted below is a trial balance report of Alpha Laundry Services for the period
ended, June 30, 2018.

Figure 7 – Trial Balance of ALS

As you can observe, the accounts reflected in Figure 7 above are arranged
according to the proper placement of the five major accounts. The Assets, Liabilities,
Owner’s Equity, Revenue and Expense accounts.

185
What’s More
Having completed the Trial Balance report is not yet the end of a
bookkeeper’s responsibility. The bookkeeper’s responsibility will only end when the
business has closed its books of accounts. The books of accounts of a business will
be closed at the end of the business’s calendar or fiscal year. The calendar year always
begins in January 1 and ends on December 31 of the same year. While the fiscal year
begins at any month of the year and ends on the 12th month of the following year. All
business activities (financial in nature) should be recorded in the books of accounts
even when the financial reports have already been prepared. Business activities or
transactions that were not included in the financial reports will be recorded to reflect
necessary adjustments.

What is an Adjusting Entry?

Adjusting entry is an entry made to update the financial data already recorded.
Making an adjusting entry helps the bookkeeper capture all financial events that
happened over a period of time with in the accounting cycle. It is essential in keeping
the financial record updated. The bookkeeper is going to look or examine accounts
that needs to be updated. Outlined below are the five basic sources of adjusting
entries:
1. Depreciation expense
2. Deferred expenses of prepaid expenses
3. Deferred income of unearned income
4. Accrued expenses of accrued liabilities
5. Accrued income or accrued assets

1. Depreciation
This is a method of allocating the cost of an asset to an expense over the
accounting periods that make up the asset’s useful life. Examples of assets subject to
depreciation are: Store, Office, Building, and Transportation Equipment. These types
of assets lose their ability to provide useful service as time passes. Depreciation can
also be referred to as the decrease in the usefulness of these types of assets. Take
note that Land is not subject to depreciation because the value of land mostly
increases as time passes.
There are several methods or formulas to compute the amount of depreciation.

186
The simplest is the straight-line method.

The formula:

Annual Depreciation = Acquisition Cost – Salvage or Residual Value

Useful Life
Where:

• Acquisition Cost – the actual cost of the asset acquired.

• Salvage Value – the selling price of the asset upon reaching the
useful life.
• Useful Life – is the economic or productive life of the asset written
in months or years.

2. Deferred expenses or prepaid expenses. These are items that have been
initially recorded as assets but are expected to become expenses over time or
through the operations of the business. In order to recognize the correct
amount of expenses, prepayments shall be amortized weekly, semi-monthly
or monthly, depending on its nature and purpose.
3. Deferred income or unearned income. These are items that have been
initially recorded as liabilities but are expected to become income over time or
through the operations of the business.
4. Accrued expenses or accrued liabilities. These are items of expenses that
have been incurred but have not been recorded and paid.
5. Accrued income or accrued assets. These are income items that have been
earned but have not been recorded and paid by the customer. In short, these
are receivables of the business.

Bookkeeping Practice Set 4: Record adjusting journal entries in the

General Journal.
Directions: Let’s take a look at Alpha Laundry Services’ transaction that transpired
after the Trial Balance have been prepared. In this activity, you are tasked to do the
following:
1. Identify accounts that need to be adjusted.
2. Prepare adjusting journal entries in the General Journal.

187
It should be noted that all transactions have already been recorded in the
general journal. All you have to do is to analyze and follow the process on how the
transactions are being recorded and forwarded using the T-Accounts applying the
rules of debit and credit.

1. Depreciation of Equipment
The laundry equipment, which was purchased by ALS on June 5, 2018 at
P150,000.00 has an estimated useful life of 5 years with a salvage value of
P10,000.00. Compute for the monthly depreciation to be charged as depreciation
expense and will be deducted against the cost to get the net book value of the
laundry equipment.
Required: Compute for the monthly depreciation using straight-line method.
Adjusting Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
43 June 30 Depreciation Expense 2,333.33
44 Accumulated Dep’n-Laundry Eqt. 2,333.33
To recognize the depreciation expense
45
for the month of June.

Formula: P150,000 –10,000 = 2,333.33

5 Years

2. Prepaid Insurance
The insurance paid for Laundry equipment is P6,000.00. An expired portion of the
insurance in the amount of P500.00 is determined by dividing the prepayments over
12 months (P6,000.00 / 12 months). The expired portion will be charged to expense.
This will reduce the value of prepaid insurance balance.
Required: Compute for the expired portion of the insurance.

To compute for the expired portion of the insurance:

Formula: Insurance Cost P6,000 = P 500

Term of Coverage = 12 months =====
(No. of Months)

Prepaid Insurance P 6,000

Less: Expired Portion (June) 500
Un-expired Portion P 5,500
188
Note: The expired portion is charged to expense (insurance expense). The un-
expired portion will be reported in the balance sheet as the new prepaid
insurance account balance for the next month.
Adjusting Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
46 June 30 Insurance Expense 500.00
47 Prepaid Insurance 500.00
To recognize the expired portion of the
48 prepaid insurance.

3. Deferred expenses for supplies inventory. At the end of the month, unused
supplies were recorded to be P3,000.

Note: The used supplies are charged to expense (supplies expense). The unused
portion will be reported as the new supplies inventory balance for the next month.

Adjusting Entry:
GENERAL JOURNAL PAGE 1

POST.
DATE PARTICULARS REF. DEBIT CREDIT
49 June 30 Laundry Supplies Expense 7,000.00
50 Laundry Supplies 7,000.00
To recognize the used portion of the
51 Laundry supplies consumables

Formula to compute for the used supplies:

Supplies at Cost P10,000.00
Less: Unused Supplies 3,000.00
Used Supplies P 7,000.00

Bookkeeping Practice Set 5: Posting the adjusting entries in the General

Ledger by using T – Account.

Directions: In this activity, you are tasked to do the following:

1. Using the completed adjusting journal entries in the general journal, update
the General Ledger records by adding or subtracting the affected accounts.

189
It should be noted that all transactions have already been recorded in the
general ledger. All you have to do is to follow the process and study how the
transactions are being computed and posted by means of applying the rules of debit
and credit.

ASSETS

LIABILITIES

OWNER’S EQUITY

REVENUE

190
EXPENSE

Bookkeeping Practice Set 6: Preparing Adjusted Trial Balance.

Directions: In this activity, you are tasked to do the following:

1. Transfer the adjusting journal entries from the general journal to the
adjustments’ column in the working paper (highlighted in yellow color).
2. Update the balance of all ledger accounts and transfer the balance to form
adjusted trial balance (highlighted in blue color).
3. Compute for the total debit and credit balances (highlighted in green color).
It should be noted that all transactions have already been recorded in the general
journal. All you have to do is to follow the process and study how the transactions are
being recorded in the working paper by means of adjusting journal
entry applying the rules of debit and credit.

191
What I Have Learned

Fill in blanks to complete the following statements:

1. _ is an employee of the company in charge to maintain bookkeeping
records of the business.
2. _ is considered the book of original entry.
3. _ is considered the book of final entry.
4. _ is the most convenient and fastest way of posting journal entries
to the ledger. This account is divided into two sides.
5. _ contains the detail for all invoices received from suppliers.
6. _ is a group of accounts directly associated from the general ledger.
7. _is the left-hand side entry also known in accounting as “Value
Received.”
8. _ is the right-hand side entry also known in accounting as “Value
Parted With.”
9. _ is a list of all ledger accounts with closed or final balances on a
certain period arranged according to the assets, liabilities, capital, revenue and
expense.
10. _ is the first account of the five major accounts which refers to
resources with economic value that an individual, corporation, or country owns
or controls with the expectation that it will provide a future benefit.

What I Can Do

Activity 1: Journalizing Business Transactions

Directions: Write your answer on a separate worksheet.

1. Prepare journalized entries on the following transactions.
2. Compute the total debit and credit balances of the general journal.
3. Use the JCN Computer Repair Services chart of accounts below.

Materials Needed:
1. 2-column worksheet (or bond paper) – 1pc
a. If using bond paper, copy the format of a general journal using pencil and
ruler.
2. Calculator and ruler
3. Ball pen / pencil with eraser

192
Ms. Julianah Chloe Neri opened her computer repair business in Cagayan de
Oro City on July 14, 2020. The following transactions occurred during the month of
July 2020:
DATE TRANSACTIONS

July 14 Invested PHP500,000.00 to her business. The trade name of the

Business is JCN Internet Café.
Julianah purchased one computer unit from XY Computer Store to be
July 15 used for her business. She issued check number 001 amounting to
PHP25,000.00.
July 16 Julianah hired Alele Valix, a BSIT graduate.
July 17 Repaired the computers of Albertos Co. and collected P10,000.00

July 18 Repaired the computers of Marko; however, Marko will pay

P15,000.00 only on August 2020.
Julianah purchased office supplies from IZA Merchandise amounting
July 19
to P 5,000.00 on account. Jualianah will pay on August 30, 2020.
July 18 Paid the salary of Alele amounting to P 4,000.00.

Activity 2: Posting Journal Entries to the Ledger Using T- Accounts

Directions: Write your answer on a separate worksheet.

1. Prepare T-Accounts from the journal entries that you have created in Activity 1.
2. Post journal entries to the T-Accounts.
3. Compute the total debit or credit balances for each T-Account.
Materials Needed:
1. 2-column worksheet (or bond paper) – 1pc.
2. Calculator
193
3. Ball pen / pencil with eraser
4. Ruler

Activity 3: Trial Balance Preparation

Directions: Write your answer on a separate worksheet.

1. Prepare Trial balance report from the T–Accounts you have prepared in Activity
2. (Tips: Cash account normal balance is Debit; the running total must also be
at the Debit side. Also, Trial balance entry will also be in the Debit column,)
2. Compute the total debit and credit balances.

Materials Needed:
1. 2-column worksheet (or bond paper) – 1pc.
a. If using bond paper, copy the trial balance format using a pencil and a
ruler
2. Calculator
3. Ball pen / pencil with eraser
4. Ruler

Activity 4: Computation for Accrued and Deferred Accounts and

Adjusting Journal Entry Preparation

Activity 4.1 – Compute for Depreciation

Directions: Compute the depreciation of the company asset using the following
information:
1. Use straight-line method in computing depreciation.
2. Make adjusting journal entries reflecting the amount of depreciation expense.
The following are financial data of the ABM Corp. for the year ended December 31,
2019:
a. The cost of the office equipment is PHP25,000.00.
b. It was estimated to have a useful life of 5 years.
c. It was estimated that after 5 years, the office equipment can be sold at a scrap
value of PHP1,000.00.

194
Activity 4.2 – Deferred Expenses or Prepaid Expenses.
Directions:
1. Compute for the expense portion of the office supplies.
2. Make adjusting journal entries reflecting the amount computed as supplies
expense.
The following are financial data of ABM Corporation for the year ended
December 31, 2019:
a. Purchased P15,000 worth of office supplies on account.
b. By the end of the month, PHP5,000 worth of these supplies are still unused.

Activity 4.3 – Deferred Income of Unearned Income

Directions:
1. Compute for the portion of unearned service revenue to be debited.
2. Make adjusting journal entries reflecting the amount computed as supplies
expense.
On February 15, 2016 Matapang entered into a contract with Makisig to maintain
the computers of Makisig for two months starting on February 15, 2016 up to

April 15, 2016. On the same date, Makisig paid the total contract amount of
PHP40,000.00 in full.
The entries to record and adjust the books are: In the February 29, 2016 entry
above, as of end of February 2016, Matapang has already earned the service revenue
for the first 15 days, thus an adjusting entry is recorded.

Activity 4.4 – Accrued Income or Accrued Assets

Direction:
1. Prepare adjusting journal entries for the following transaction:

On February 28, 2016, Juan repaired the computer of Pedro for PHP15,000.
Pedro was on an out-of-town trip so he could not pay Juan. He told Juan that he will
pay for their services on March 1, 2016. Juan has already earned the PHP15,000 but
was not paid as of the end of February 2016. Therefore, an income should be properly
recognized in February 2016 for this transaction.

195
Assessment

Matching type: Match the description in column A to the term found in column B.
Direction: Use a separate answer sheet. Write the letter only.

COLUMN A COLUMN B
1. First account of the five major accounts which
refers to resources with economic value that it will A. Bookkeeper
provide a future benefit
2. List all ledger accounts with closed or final
balances arranged according to the assets,
B. General Journal
liabilities, capital, revenue and expense

3. Also known in accounting as “Value Parted With” C. General Ledger

4. Also known in accounting as “Value
Received” D. T - Account
5. Group of accounts directly associated from the E. Accounts Payable
general ledger Ledger
6. Contains the detail for all invoices
F. Subsidiary Ledger
received from suppliers
7. The most convenient and fastest way of posting
G. Debit
journal entries to the ledger.
8. Book of final entry H. Credit

9. Book of original entry I. Trial Balance

10. Employee of the company in charge to maintain
J. Asset
bookkeeping records of the business

196
Lesson
Identifying where there is a Profit
10.2 or Loss for a Business

What’s In

Profitability has always been the bottom line of a business. In reporting accurate
financial information, the bookkeeper and the bookkeeping systems take the significant
roles. Accurate financial reports will enable sound decision making.
In identifying the profit or loss of a business, the bookkeeper must record all
transactions that have monetary value. These records will then be converted into key
financial reports. Key financial reports are composed of statement of financial position
(balance sheet), statement of comprehensive income (income statement), statement of
cashflows, and statement of changes inequity. These reports are discussed in the ABM
specialized subject, Fundamentals of Accountancy, Business and Management 2.

What’s New

In computing for the Net Income or net earnings, a bookkeeper must consider
the type of business that his/her company is engaged. Below is a matrix of the type of
business organizations and the different types of revenues, cost and expenses to be
considered.

Types of Business Revenue Type Cost / Expenses Type

-Service Income
Service-Concerned -Service Fee - General & Administrative
-Membership Fee Expense
- Sales Returns and Allowances
Merchandising-Concerned Sales - Cost of Sales
- General & Administrative
Expense
- Sales Returns and Allowances
- Cost of Good Manufactured
Manufacturing Sales
- Fixed or Variable Costs
- General & Administrative
Expense
197
For simplicity purposes, this module will tackle the service-concerned business in
illustrating the process of computing net income.

Below is the basic equation for computing net income of a service-concerned

business:

Net Income/Loss = Service Income - Total Expenses

Activity 1 – Computing Net Income or Net Loss, Collectibles and Expenses

Directions: Apply the basic equation of income statement written above and answer
the questions bellow.
GIN Janitorial and General Services, Inc. is a company engaged in providing
janitorial services to different business establishments in the city. The following financial
data reveals the income and expenses records during the last quarter of 2018:
Revenue / Service Income:
Service rendered – on account (Deluxe Hotel) P 95,000.00
Service rendered – Cash (Maxandria Hotel) 145,000.00
Service rendered – on account (Pearlmont Inn) 25,000.00
Service rendered – Cash (Mallberry Suites) 105,000.00
Service rendered – Cash (VIP Hotel) 65,000.00
Service rendered – on account (Dynasty Court Hotel) 75,000.00
Service rendered – on account (Grand City Hotel) 60,000.00

TOTAL P570,000.00

Salaries and Wages of Employees:

Janitor’s Salary– Total P 95,000.00
Management Staff Salary – Total 45,000.00
General Manager’s salary– Total 70,000.00

TOTAL P210,000.00

Operating and Administrative Expenses:

Utilities Expenses P 15,000.00
Rent Expense 15,000.00
Repairs and Maintenance 7,500.00
Transportation and Communications 4,500.00

TOTAL P 42,000.00

198
The owner of the business wants to know the operations of the business. You
are tasked to compute for the following:
1. Total service income collected in cash
2. Total service income still collectible
3. Total expenses
4. Net income of GIN Janitorial and General Services, Inc.
5.

What is It

Discussion of Activity 1

A wise businessman always monitors the operations of his business in order to

render timely and sound decisions. One of the many ways to track down the operations
of the business is to check the status of its income generating activities on a periodic
basis. A trend must be established so that when the profitability path deviates, a timely
decision would be made.
In Activity 1, the financial information reported is enough for a bookkeeper to
compute the net income, total expenses and the collectible amount. Cash and non-
cash service income should be split in order to have a proper recording of the cash on
hand and the collectibles. In applying the basic equation of income statement, the
following re-grouping is suggested:

Service Income (Cash) P xxx

Less: Operating and Administrative Expense xxx
Add: Salaries and Wages xxx xxx
Net Income / Loss P xxx
======

199
What’s More

ACTIVITY 2: Preparing Personal Income Statement

Directions:
• Write your monthly allowance (computed by daily allowance x number
of days in a month). Compute the total.
• Write the amount you spend on food, transportation, phone load, etc.
(make it monthly to match your allowance). Compute the total.
• Deduct the total amount you spend from the total amount of your
allowance.
• Associate allowance with revenue and spending with expense with the
net amount as net income.

Materials Needed:
• Pen
• 1 whole sheet of paper (a long-sized bond paper is ok)
• Calculator

What I Have Learned

Essay: Answer the following questions in a separate sheet of paper or a long- sized
bond paper.
1. If you are engaged in business, illustrate how revenue or income are made.
2. If you are engaged in business, illustrate how an expense is made.
3. If you are the owner of the business, is payment of employee salaries an
expense? Why?
4. Compare revenue to income. Illustrate an example If necessary.
5. Explain the process of computing the Net Income or net loss.

Rubrics for Grading the Answers:

5- If the paragraph consists of 5 or more sentences with correct and complete Information.
4- If the paragraph consists of 3 to 4 sentences with correct information.
3- If the paragraph consists of 2 to 3 sentences with correct information.
2- If the paragraph consists of 2 sentences with correct information.
1- if the paragraph consists of only one sentence with correct in formation.

200
What I Can Do

ACTIVITY 3: Computing Revenue, Expenses and Net Income/Loss

Directions:

1. Use 1 separate sheet or bond paper in writing your answer.

2. Compute for the following:

a) Total Revenue

b) Total Expense
c) Net Income/Net Loss
d) Briefly explain your answer

Mr. Izatsuki Hamida, the bookkeeper of Honda Massage and Spa Services
reported the following financial records for the months of January to March 2018:

Water expenses ---------------------- P 4,000.00

Soap expense ---------------------- 7,500.00
Massage oil expenses ---------------------- 15,000.00
Light & power expenses ---------------------- 12,000.00
Rent of the Massage parlor---------------------- 24,000.00
Salary of staff (4 massage workers)-------- 72,000.00
Income received from massage service-------- 115,700.00
Income not yet received from customer-------- 55,000.00
Telephone expenses ------------------------ 7,500.00

201
Assessment
1. The following are financial records of ABC Company

• Revenues – P 20,000.00 • Salaries expense – P4,000.00

• Rent expense – P3,000.00 • Utilities expense – P2,000.00

How much is the total expenses?

a. P9,000.00 b. P10,000.00 c. P18,000.00 d. P1,000.00

2. How much is the net income?

a. P9,000.00 b. P10,000.00 c. P 18,000.00 d. P11,000.00

3. One of the account titles below is used in making an adjusting entry. Which is one is it?
a. liability b. prepaid insurance c. asset d. capital

4. This is also known as the book of original entry.

a. income statement c. general journal
b. balance sheet d. general ledger

5. This is also known as the book of final entry.

a. income statement c. general journal
b. balance sheet d. general ledger

6. Mang Ariel sells bottled water in a nearby public bus terminal, every day he can sell 70
pieces of bottled water at P20.00 pesos each. How much is his daily revenue?
a. P1,400.00 b. P1,700.00 c. P1,800.00 d. P1,450.00

The following are financial records of Lex Luther Corp.

• Service Income, Customer 1 –P50,000.00 • Salaries Paid to Clerk – P5,000.00

• Rent Expense – P3,000.00 • Utilities Expense – P2,000.00
• Service Income, Customer 2 • Salaries Paid to Manager –
(not yet received) – P 25,000.00 P9,000.00

7. How much is the total expenses?

a. P19,000.00 b. P10,000.00 c. P18,000.00 d. P9,000.00

8. How much is the net income?

a. P59,000.00 b. P50,000.00 c. P 31,000.00 d. P56,000.00

9. How much is the total revenue?

a. P59,000.00 b. P50,000.00 c. P31,000.00 d. P75,000.00

10. How much is the amount still collectible?

a. P25,000.00 b. P50,000.00 c. P31,000.00 d. P75,000.00

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