4Ms of Production Management

4. Demonstrate understanding of the 4Ms of operations. https://www.scribd.
com/presen
tation/322711508/4-M-s-OF-
The learners… PRODUCTION
4.1 Describe the 4Ms (Manpower, Method, Machine, Materials) of operations in relation
to the business opportunity: CS_EP11/12ENTREP-0h-j-12
4 M’s of Production Management
Method=
The Manager will determine the most efficient way for each portion of the process
to be done to eliminate damage to the product and to eliminate areas where time
and manpower are be wasted. Controlling waste is the key to efficient and
profitable production.
4. Demonstrate understanding of the 4Ms of operations. https://www.scribd.com/presen
tation/322711508/4-M-s-OF-
Manpower =
When examining the Methods you now have in place, what is the ideal number of
people it will take to perform these methods and what
positions should they be in? How will the personnel be trained and
measured for performance? What is the “cycle time” of each part of the Method?
tation/322711508/4-M-s-OF-
3. Machine=
When examining your facilities, vehicles and tools,
do you have everything you need to ensure the safety
of the employees while maximizing the efficiency
and productivity of the
department? Do all employees have access to the
same tools and equipment
if needed? Do the tools enable them to perform tasks
independently? Are they trained on how to maintain
the machinery and tools?
tation/322711508/4-M-s-OF-
4. Materials =
Do you have the materials needed to perform all parts of production and are they
conveniently located to minimize
waste? Example: All material needed to clean and
package are always available and are placed to
minimize effort. Does the layout of the production
department minimize wasted movement? Example:
Does the part flow go in one direction or does it zig and
zag throughout your facility?
4.1.1 Develop a product description;
7 Simple Steps to Writing Product Descriptions That Sell
CS_EP11/12ENTREP-0h-j-12 https://www.entrepreneur.com/article/230628
How seductive are your product descriptions?

Does your product copy entice readers to click buy or try? Or do you simply
describe your product and tell web visitors what it does?
The secret to writing seriously seductive product descriptions is to follow a proven
process to engage, persuade, and sell.
To get started, you need to know exactly who it is that you want to buy your
product.
1. Define Your Buyer Persona

“Basing your work on buyer personas prevents you from sitting on your butt in
your comfortable office just making stuff up, which is the cause of most ineffective
marketing.” ~ David Meerman Scott
A buyer persona is an imaginary customer. It is the person for whom you've
developed your product and to whom you'd love to sell it (of course!). He or she
represents your target audience, but is much more real than a vague description of
some demographics.
You need to know your buyer persona so well that you know exactly what makes
her laugh, what makes her shake her head in disbelief, what makes her click buy,
and what makes her hesitate to order.
1. Define Your Buyer Persona

To describe your buyer persona, think about what she's reading and which
websites she visits, because that will help you understand the right tone of voice
that will engage her. Consider what keeps her awake at night, what she dreams of
achieving, and how she makes decisions, because that will enable you to create
copy that speaks to her and taps into her feelings.
Clearly defining your buyer persona will give you the information you need to
transform product-centric descriptions into customer-centric descriptions.
Visualizing your buyer persona will empower you to make your descriptions more
vivid, personal, and persuasive.
2. Create a Comprehensive List of Features and Benefits

Potential clients don't want to know what your product is or does. They want to
know what's in it for them. How does it make their lives better? Which problems
does it take away?
Before you start writing, list all of your features and specs, and then translate them
into benefits. A feature is a fact about your product, while a benefit is an
explanation of what that feature does for your reader. A benefit can be phrased as a
positive (e.g., improves productivity) or as a problem that's avoided or reduced
(e.g., decreases stress).
2. Create a Comprehensive List of Features and Benefits

The bullet points below for Amazon’s
Paperwhite, for instance, mix positive
benefits (read with one hand and
battery lasts weeks) with problems
that are avoided (no screen
glare and read without eyestrain).
3. Define Your Tone of Voice

Do you want to sound like a boring big corporation? Or do you want to engage
readers with personality and a dash of humor?
Your tone of voice can differentiate you from your competitors; it gives readers a
strong impression of your organization's culture and personality.
Rather than say you're fun to deal with, let your personality shine through your
content and add a dash of humor. Rather than remark that your customer service is
excellent, let your tone of voice demonstrate that you're friendly, approachable,
and interested in understanding your client's business.
3. Define Your Tone of Voice

Your tone of voice shows who you are and how you deal with your clients.
To define your tone of voice, consider what you are and what you're not. For
instance: We're cheeky and fun, but we never use bad language. Or: We're
business-like, but not boring, and we don't use gobbledygook phrases such as
market-leading and world-class.
If you were going to speak to your buyer persona in real life, which tone would
you strike? That's the voice you want to emulate in your writing.
4. Create a Scannable Format

Research suggests that people read only 16% of the words on the average web
page.
To entice people to buy your product or trial your app, they probably need to read
your copy. So how do you tempt people to stop skimming your page and start
reading your content?
Let's look at two examples:
The InVision product page uses an easy-to-scan and easy-to read format. The
subheadings have a font size of 30px, while the body text has a comfortable font
size of 20px.
4. Create a Scannable Format

Most subheadings focus on a benefit
(e.g., a real time to-do list keeps
projects moving forward), while the
body text provides a more detailed
explanation. Pictures and simple
animations almost make you feel as
if you're using the product,
increasing your desire to try it.
5. Write a First Draft

Once you know who your buyer persona is and have planned your content, writing
a first draft becomes much easier.
Go through your list of features, benefits, and objections, and rank them in a
logical way that your buyer will find easy to follow.
If your list is relatively short, include the
most important benefits first and the least
important last. If your list is longer, you
may want to go for a topical arrangement.
Apple, for instance, has specific pages
about design features and built-in apps.
5. Write a First Draft

Make your copy comprehensive and persuasive by mentioning all of the benefits
of your product, and make sure you take away common objections. If your product
is relatively expensive, then you need to point out how much value buyers get out
of it. If buyers are concerned about how complicated it is to sign up for your app,
then suggest how quickly they can do it.
Turning a drab first draft into passionate copy is like flogging a dead horse. So
write your first draft when you feel positive and enthusiastic. Write rapidly, and
don't worry about spelling and grammar mistakes (that's what's your editing phase
is for).
6. Edit Your Text to Boost Your Persuasiveness

Editing your text doesn't mean you just correct typos and grammar mistakes.
You edit your copy to make it more readable, engaging, and persuasive:
 Review your list of features and benefits to ensure you haven't missed
anything.
 Check your engagement level. Is the copy focused on the reader or your
company? Highly engaging copy uses the word you more often than your brand
or product name and the words I, we, and us.

 Improve readability by replacing difficult words with simple words and by
reducing average sentence length. Don't worry about starting a sentence with
and, because, or but. Even Apple copywriters start their sentences with
conjunctions.
 Replace generic phrases with specific details, because specificity increases
your credibility. Excellent customer service is a generic phrase that doesn't
sound credible. We'll answer your inquiry within 24 hours is more specific and
credible. Include numbers where possible, because they represent facts and stop
wondering eyes.

Before you move on to your last step, picture yourself talking to your buyer, and
read your copy aloud. Do you stumble over any sentences? Does your copy
engage your buyer? Does it persuade him to buy?
Polish your copy until you can seduce your buyer to purchase.
7. Optimize Your Copy for Search Engines

When you write for your buyer persona and use the phrases he uses, you're
automatically optimizing your product descriptions for search engines, because
these are the phrases he searches for on Google.
Optimize your product images by using your key phrase in the file name, image
description, and alt tag.
Thinking too much about search engines kills your seductive powers because no
one enjoys reading content that's sagging under keyword sludge.
Always write for your reader first, and optimize for search engines later.
4.1.2 Create a prototype of the product; https://www.entrepreneur.com/article/80678
Creating a Product Prototype CS_EP11/12ENTREP-0h-j-12
One of the essential early steps in the inventing process is creating a prototype--
which, simply defined, is a three-dimensional version of your vision. Creating a
prototype can also be one of the most fun and rewarding steps you'll take. That's
because developing a prototype gives you the opportunity to really tap into your
creativity, using those skills that inspired your invention idea in the first place.
And whether you're making your prototype at home or hiring the services of an
engineer, seamstress or machinist, it's truly exciting to see your idea transformed
into something tangible and real.
So what exactly should a prototype look like? First, it depends on your idea.
Second, it depends on your budget and your goals. If possible, it's great to start
with a handmade prototype, no matter how rudimentary. For example, I've seen
prototypes made from the simplest of household items: socks, diaper tabs,
household glue, empty milk containers--you name it. If it works for your initial
demonstration purposes, it's as good as the most expensive materials.
ADVANTAGES OF PROTOTYPES
1. It enables you to test and refine the functionality of your design.
Sure, your idea works perfectly in theory. It's not until you start physically
creating it that you'll encounter flaws in your thinking. That's why another great
reason to develop a prototype is to test the functionality of your idea. You'll
never know the design issues and challenges until you begin actually taking
your idea from theory to reality.
2. It makes it possible to test the performance of various materials.
For example, your heart may be set on using metal--until you test it and realize
that, say, plastic performs better at a lower cost for your particular application.
The prototype stage will help you determine the best materials.
3. It'll help you describe your product more effectively with your team,
including your attorney, packaging or marketing expert, engineers and potential
business partners.
4. It will encourage others to take you more seriously.
When you arrive with a prototype in hand to meet any professional--from your
own attorney to a potential licensing company--you separate yourself from the
dozens of others who've approached them with only vague ideas in mind.
Instead, you'll be viewed as a professional with a purpose, as opposed to just an
inventor with a potentially good idea.
Making a prototype by hand is a great way to start bringing your product to life.
Remember, there are no rules! Give yourself permission to experiment. Look
around the house and select materials that you can use to test to see if your idea
works.
Developing Your Prototype
So now that you know that creating a prototype is a vital step in your invention
process, how exactly do you move forward and actually do it? This stage in the
inventing process is possibly the period of greatest learning. This is where your
words and thoughts change from "Can I?" to "How will I?"
4.1.3 Test the product prototype;
Test Your Prototypes: How to Gather Feedback and Maximize Learning CS_EP11/12ENTREP-0h-j-12
Once you’ve built your prototypes based on the ideas you and your team generated,
it’s time to gather feedback from the people on whom you are testing these.
Optimizing how you gather feedback — and, therefore, learn from your prototypes
and users — is essential to help you save time and resources in the Prototype and test
stages of the Design Thinking process – and in any other human-centered design
process. Being quick and efficient allows you to move rapidly from creating a
prototype, to putting it out to test it, to gathering feedback, and finally to creating a
new and improved iteration of your ideas. To maximize learning from your tests, we
will share six best practice tips on how to gather feedback, as well as three methods
on how you can organize your feedback.
https://www.interaction-design.org/literature/article/test-your-prototypes-how-to-gather-feedback-and-maximise-learning
Six Best Practice Tips for Gathering Feedback on Your Prototypes
Gathering feedback is a crucial element in the Design Thinking process – and in
all other human-centered design processes. In order to maximize the benefits of
gathering feedback, however, you need to be purposeful about it. Here are some
pointers to take note of when thinking about gathering feedback from your users.
1. Ways to Solicit Feedback
How you solicit feedback from your users (or team-mates, if you are doing
preliminary testing with your prototypes within your team) depends largely on
what type of prototype you have built. For instance, if your prototype were a role-
playing session, the experience of acting out the roles would be a valuable source
of observations and feedback in itself. On the other hand, paper interfaces and
physical models might require additional interviews with users to get them to talk
about their thinking process while using the prototype.
Nevertheless, there are some general rules of thumb you can rely on in order to
solicit better feedback. First, you can consider testing out several versions of your
prototype on users to gather feedback. This helps to solicit critical feedback —
because people tend to hold back on overtly criticizing prototypes. When you
present your users with alternatives, you allow them to compare the various
prototypes and tell you what they liked and disliked about each version, and so
you will get feedback that is more honest.
You can also consider using the “I Like, I Wish, What If” method to solicit
honest feedback in testing sessions. This method provides scaffolding for your
users to voice their opinions in a critical but positive manner. We will cover more
on this method, and provide a downloadable template for it, further down..
2. Test Your Prototypes on the Right People
Whom you test your prototypes on will affect the usefulness and relevance of their
feedback. If you are in the early stages of your design project and just want some
simple and rough feedback, testing prototypes on your team-mates would be good
enough. Towards the end of your project, when the prototypes get more detailed
and closer to a final product, however, you might want to consider testing on a
wider range of users so as to get the most relevant and helpful feedback.
Consider testing your prototypes on extreme users, on top of regular users. In
order to find extreme users, you will first need to define a dimension that is
relevant to your prototype. If you are working on an idea related to a supermarket,
for example, your extreme users could be people who shop at supermarkets every
day, and — at the other end of the scale — people who never shop at
supermarkets. Testing your prototypes on extreme users will often help you
uncover some problems and relevant issues that affect regular users, because the
extreme users tend to be more vocal about their love (or dislike) of doing things
related to your prototype.
If your product or service is cross-regional or international, you should also test
your prototypes across regions and countries. Differences in cultures and
customs might affect how people living in different areas use your prototype.
Towards the final stages of your project, you should also get feedback on your
prototypes from stakeholders other than your users. Internal stakeholders in your
company, manufacturers, retailers and distributors will each have their own criteria
for building, making or shipping a product or service, and can have an impact on
the success of your idea. Gathering feedback from these stakeholders will thus
prevent your team from receiving a nasty shock when you realize that you won’t
be able to implement the product or service you have been developing as feasibly
as you had believed.
3. Ask the Right Questions
Each prototype that you test should have a few core questions you want answered.
Before you test your prototypes and gather feedback, you should therefore be sure
about what exactly you are testing for. For instance, if you have built your
prototype to gather feedback about the usability of your product, then you should
gear your testing session towards teasing out how usable the prototype is to the
user. Subsequently, in a post-testing interview session with your user, you should
then focus on finding out the positive and negative feedback relating to usability.
3. Ask the Right Questions
Remember to keep an open mind when testing your prototypes, even though you
have a few core questions you want to focus on. Many times, testing sessions can
reveal key points on issues that your team did not even know to focus on. After
testing, you should evaluate the feedback and decide if there are new questions
that you should ask during future testing sessions.
4. Be Neutral When Presenting Your Ideas
When you present your prototypes to your users, try to be as objective as you can.
Highlight both the positive and negative aspects of your solution, and refrain from
trying to sell your idea. Remember that prototyping and testing is about finding
ways to improve your idea, and overly selling your idea can be detrimental to that
goal.
4. Be Neutral When Presenting Your Ideas
When your users voice negative feedback about your prototype, refrain from
trying to defend it. Instead, probe them further to find out what exactly is
wrong with your proposed solution, so you can go back and improve your
ideas. Avoid becoming too attached to your idea, and always be ready to
dismantle, change, or even abandon it when the need arises. Remember, this stage
is like a rehearsal, not the real “show”; you’re not being cut to pieces in the
marketplace — in fact, any careful corrections you can make that stem from
negative feedback will greatly help your chances of success later on.
5. Adapt While Testing
When you conduct tests on your prototypes, try to adopt a flexible mindset. For
instance, when you realize that certain components of your prototype are drawing
attention away from the core functions of the prototype, you can remove these or
change them in order to bring the focus back to the key elements of your idea. In
addition, if you think that your planned script for the testing session does not work
well, feel free to deviate from it and improvise during the testing session in
order to get the best feedback from your users.
6. Let the User Contribute Ideas
During your testing session, you should allow your users to contribute ideas that build
on your prototypes. You can ask your users how the product or service could be
improved for them, for instance. Doing so would encourage users to provide useful
critiques as well as help improve your solution.
You can also turn some questions that your users ask during the tests around, and ask the
users what they think. For example, if your user asks you how to charge an electronic
product, you can turn it around and ask them what would be the best charging method
for the product. Even if you do not adopt their ideas, their feedback would likely give
you insights about the key areas of concern that your users have while using your
product or service.
4.1.4 Validate the service description of the product with potential customers to determine
its market acceptability; CS_EP11/12ENTREP-0h-j-12
Validate the Service Description of the Product
You have to validate the service description of the product with potential
customers to determine its market acceptability. You will never know how well
your product will do until you actually try to sell it. By validating your product
idea before proceeding, you can lessen risk and build confidence in your idea
before investing too much time and money.
4.1.4 Validate the service description of the product with potential customers to determine
its market acceptability; CS_EP11/12ENTREP-0h-j-12
Validate the Service Description of the Product
STRATEGIES IN VALIDATING THE PRODUCT
1. Analyze your Competition – Look at your competition to better understand demand
and potential product appeal.
2. Understand the Market – Look closely at the market and direct interest from
consumers.
3. Survey Your Target Market – You can gather a secondary research, but it is also
important to gather your own survey, based on your exact product and target
demographic. The quickest and cheapest way is to do it yourself using a simple
survey form and sent it out to friends and family in your target market.
4. Open a Test Store – Set up a test store to assess the demand for your idea. The
method involves setting up a store with your product and driving traffic to it to test
consumer interest.
4.1.5 Select/pinpoint potential suppliers of raw materials and other inputs necessary for
the production of the product or service; CS_EP11/12ENTREP-0h-j-12
Select Potential Suppliers
Selecting potential suppliers of raw materials and other inputs necessary for the
production of the product or service will depend on a wide range of factors such as value
for money, quality, reliability and service. In order to get the right supplier for your
business, you have to know your needs, spend time on research, ask around, credit check
potential suppliers, agree on service levels before you start. Don’t buy from too many
suppliers, but don’t have just a single supplier.
Create a team to set the supplier selection criteria. The members should include
personnel with technical/applications knowledge of the product or service to be
purchased, as well as members of the department that uses the purchased item, like
purchasing, quality control, engineering and production.
Supplier Selection Strategies and Criteria:
1. Identifying potential suppliers – ask for recommendations, look at directories, trade
associations, business advisors, exhibitions, magazines.
2. The supplier should have quality, value for money, strong service and clear
communication, financial security, strong relationship.
3. Previous experience and past performance with the product/service to be
purchased.
4. Relative level of sophistication of the quality system, including meeting
regulatory requirements or mandated quality system registration.
5. Ability to meet current and potential capacity requirements on desired delivery
schedule.
Supplier Selection Strategies and Criteria:
6. Financial stability, length they have been established.
7. Technical support availability and willingness to participate as a partner in
developing and optimizing design and a long-term relationship.
8. Choosing a supplier – approach the potential supplier and ask for a written quotation,
compare potential suppliers, negotiate terms and conditions like price, delivery,
terms, quality of goods and services.
9. Total cost assessment. Requesting a formal quote, which includes specifications and
other requirements.
10. Visits to the supplier by management or the selection team.
4.1.6 Discuss the value/supply chain in relation to the business enterprise;
CS_EP11/12ENTREP-0h-j-12
Value/Supply Chain in Relation to the Business Enterprise

Supply chain is the process of all parties involved in fulfilling a customer request. Value
chain is a set of interrelated activities a company uses to create a competitive advantage.
The major difference between a supply chain and a
value chain is within a supply chain, there is no value
added. In a supply chain, all that is being done is
Supplier storage and transportation from supplier to customer.
Custome Value Company In value chains, as much as there is transportation and
r Chain some storage involved, the main purpose of a value
Distribution chain is to add value to the product so as to make it
presentable to the customer like packaging.
Value/Supply Chain in Relation to the Business Enterprise

A supply chain is as important to the business world as a value chain. Supply chains are
the one thing that connects the world. A product produced or manufactured on a country
is essential for daily consumption of another country. The reason you always find this
product on the shelves at your store or supermarket is because supply chains never rest,
so that the product you need is always available. The two are difficult to separate in that
most of their functions overlap. Both supply and value chains needs transportation and
storage. The major difference is that with a supply chain, there is no need for some
functions like packaging or marketing the product.
SUPPLY CHAIN
Supplier Manufacturer Distributor Retailer Shoppers
GROUP ACTIVITY
1. Group the class into four.

2. Within 5 minutes, the group shall create a company wherein learners shall
exemplify supply and value chain.
3. Present their output using the following criteria:
a. Originality 5
b. Collaboration 5
c. Content 5
TOTAL POINTS 15
4.1.7 Recruit qualified people for one’s business enterprise;
Recruit Qualified People for the Business Enterprise

You can find the right people for the job by a well-structured recruiting and selection
program. The key to successfully develop such a program is to follow a proven
recruiting process for the position you need to fill.
In recruiting qualified people, do the following:
1. Develop accurate job descriptions. Ensure you have an effective job description for
each position in your company. The job descriptions should reflect the roles the
individual will fill, the skill sets they need, the personality attributes they have that
are important to completing their tasks.
2. Draft the employment advertisement describing the position and the key
qualifications required. Describing the qualifications required will help you limit the
number of unqualified applicants.
3. Post the employment ad in the media most likely to reach your potential candidates. You
can post job openings on the internet or newspaper.

4. Develop a series of phone-screening questions. Compile a list of suitable questions
you can ask over the phone to help you quickly identify qualified candidate and
eliminate unqualified applicants.
5. Review the resumes you receive and identify your best candidates. When you start
receiving resumes, you have to know what you are looking for in terms of experience,
education, and skills.
6. Screen candidates by phone. Once you have narrowed your pile of resumes to a minimal
number of potential applicants, call the candidates and use your phone screening
questions to narrow the list.
7. Select candidates for assessment. Based on the responses to your phone interviews,
select the candidates you feel are best qualified for the next step in the process.

8. Assess the potential candidate for their skills and attributes using an assessment tool
to help you analyze the core behavioral traits and cognitive reasoning of the
applicants.
9. Schedule and conduct candidate interviews. Once you have selected candidates,
schedule and conduct the interviews. Use a consistent set of 10 or 12 questions to
maintain a structured interview to have a sound basis for comparing applicants.
10. Select the candidate. Make your selection by matching the best applicants to the
profiled job description.
11. Run a background check on the individual to uncover any potential problems not
revealed by previous testing and interviews.
12. Make your offer to the candidate. The information you collected during the interview
process will provide you with important discernments as to starting compensation levels
and training requirements.
GROUP ACTIVITY
1. Group the class into four.

2. In a any desired position, the group shall create a series of questions they shall
ask for their prospective employees within 15 minutes. Discuss your motives
for each questions.
3. Using a whole sheet pad paper to list down your questions, present your output
guided by the following criteria:
a. Originality 5
b. Collaboration 5
c. Content 5
d. Presentation 5
TOTAL POINTS 20
4.2 Develop the business model; CS_EP11/12ENTREP-0h-j-13
Developing the Business Model
A business model describes the value an organization offers its customers
and illustrate the capabilities and resources required to create, market, and
deliver this value and to generate profitable, sustainable revenue streams.
A business plan is a more detailed version of your business model. A
business plan has been traditionally understood as a physical document.
Business model may take the form of a one page visual representations
which can either be produced before a business plan or as part of the same
planning process.
Sample Business Model: Native Bag
Key Key Activities Value Customer Relationships Customer
Partners Proposition Segments
List of partners List of key activities List of value Describe how you plan to establish and manage Describe target
proposition the relationship between the customer and your customer
brand:
Design Conception Trendy bag
Outlets Promotion Selling made in
Email Online
Fair Trade respect to Channels Eco friendly
Key Resources nature people
Trendy people
List Key resources available Describe how you plan to acquire customer, how
you plan to deliver your value proposition to
Designers them, how you plan to communicate with them.
Raw materials
Manufacturers Dept. stores
Sales Manager Outlets
Cost Structure Revenue Streams

Describe your cost structure: Describe your revenue streams
Raw materials Transport Revenue from the sale of bags
Wages Commission Tools
4.3 Forecast the revenues of the business; CS_EP11/12ENTREP-0h-j-14
Forecast the Revenues of the Business
Proper financial forecasts will help you develop operational and staffing
plans that will help make your business a success.
Product sold P 1,000.00
Services rendered 500.00
Total Sales P 1, 500.00
Forecast revenues using both a conservative case and an aggressive case. By
building two sets of revenue projection, you’ll force yourself to make
conservative assumptions and then relax some of these assumptions for your
aggressive case.
For example, your conservative revenue projection might have the following
assumptions:
• Low price point
• Two marketing channels
• No sales staff
• One new product or service introduce each year for the first three years.
Your aggressive case might have the following assumptions:
• Low price point for base product, higher price for premium product.
• Three to four marketing channels managed by you and a marketing
manager.
• Two salespeople paid on commission.
• One new product or service introduced in the first year, five more
products or services introduced for each segment of the market in years
two or three.
4.4 Forecast the Cost and Expenses to be Incurred CS_EP11/12ENTREP-0h-j-15
A business’ expenses can vary depending on the type of operations the
business is engaged in.
A budget identifies the planned expenditure for a project or program. It is
used as a baseline against which the actual expenditure and predicted
eventual cost of the work can be reported.
Direct cost P xxx.xx Fixed expenses P xxx.xx

Indirect cost xxx.xx Variable expenses xxx.xx
Total cost P xxx.xx Total operating expenses P xxx.xx
Direct Cost are costs directly tied to a product or service that a company produces.
Direct costs can be easily traced to their cost objects. Cost objects can include
goods, services, departments, or projects.
Direct costs include:
• Direct labor
• Direct materials
• Manufacturing supplies
• Wages tied to production
https://www.investopedia.com/ask/answers/041515/what-difference-between-direct-costs-and-variable-costs.asp
Variable Cost are costs that vary as production of a product or service increases or
decreases. Unlike direct costs, variable costs depend on the company’s
production volume. When a company’s production output level increases,
variable costs increase. Conversely, variable costs fall as the production output
level decreases.
Direct costs can be variable costs or fluctuate with volume. For example, the
packaging costs associated with a product would be a direct cost, but also a
variable cost since the packaging costs would increase as sales increased. The raw
materials used to make the product would also be variable costs since the cost of
materials would rise and fall depending on sales volume of the product. The raw
materials would also be a direct cost.
https://www.investopedia.com/ask/answers/041515/what-difference-between-direct-costs-and-variable-costs.asp
Cost of Goods/Services – costs that are related to manufacturing or
implementation of services being sold. It may be direct or indirect cost.
1. Direct costs are resources directly involved in creating the product like
materials, supplies, packaging, and direct labor cost or service cost. Eg.
Salary of the machine operator and material purchases.
2. Indirect costs include overheads and other charges that may be shared by
production with sales, marketing or administration. Eg. Electricity and
water usage.
What is the difference between cost and expense?
Definition of Cost
A cost might be an expense or it might be an asset.
Definition of Expense
An expense is a cost that has expired or was necessary in order to
earn revenue. The matching principle guides accountants as to when a cost
will be reported as an expense.
Example of a Cost
A company's property insurance bill for the next six months of insurance
shows a cost of $6,000. Initially the cost of $6,000 is reported as the current
asset Prepaid insurance (or Prepaid Expense) since the cost has not been
used up (has not expired).
https://www.accountingcoach.com/blog/cost-expense-2
Operating Expenses - needed to keep the business running that are not
directly related to the manufacturing or implementation of services being
sold.
Fixed costs remain the same regardless of how much output is achieved.
• Rent
• Utilities • Research and development
• Communication costs • General & administrative
• Accounting/bookkeeping • Advertising & Marketing
• Legal/insurance/licensing fees
Variable costs fluctuate depending on how much resources are used.
• Salaries
• Transportation
• Travel and accommodation
• Gasoline
GROUP ACTIVITY:
Direction
1. All learners shall go around the room and select among the four corners
with a sample problem to solve.
2. Identify each account either direct or indirect cost or fixed or variable
expenses.
3. With the given assumptions, each learners shall compute for the projected
three years cost in their own activity sheets for budgeting purposes.
4. Discuss within your group what you deemed correct and proper
identification and computation of each account.
5. Each group shall present their output in a Manila Paper.
6. A rubrics shall serve as guide in presenting their output.
Forecasting/budgeting costs and expenses
If you have an ongoing business, you can make a forecast by using historical
data from your accounting records as the base figure, and adjust this for any
anticipated changes in your business plan.
If you are just starting a new business where there is no historical data, it is
important to get a best estimate and start the financial projections. Anyway
you can always adjust them later as the business plan takes shape.
Sources of information for projecting cost and expenses
1. Information from similar businesses or trade associations.
2. Industry benchmark data and statistics.
3. Contact suppliers for quotation.
4. Check whether the expense can be linked to a percentage of revenues, and
use a benchmark operating expense ratio to determine the cost.
5. For certain controllable cost such as advertising and promotion, decide on
the amount you are prepared to spend.
6. For salaries, check the Dept. of Labor for minimum wage rate or
determine wage rate for certain work provisions.
4.5 Compute for profits; and 4.6 Create the company’s five (5) year projected financial
statements. CS_EP11/12ENTREP-0h-j-16 CS_EP11/12ENTREP-0h-j-17
Create a Five-Year Projected Financial Statement
Business Plan Financial Projection
Your financial investors are interested in their investment. To them, the heart
of your business plan is represented by the financial projections which must
include your income statements, balance sheets, and cash flow statements.
These statements must convince your investors that your business will
generate enough profit and cash.
Projected Income Statement
The income statement (or profit and loss statement) shows the revenue,
expenses, and net income (net loss) for a period of time. Net income is the
amount by which total revenue exceeds total expenses. The resulting profit is
added to the retained earnings account (accumulated earnings of a company
since its inception less dividends). A net loss reduces the retained earnings
account. The projected income statements demonstrate that your business has
the ability to earn profits.
Sample Projected Income
Statement
ACTIVITY
Divide the class into two and permit them to create a sample Income
Statement based on their previous simple business plan.
Projected Balance Sheet
The balance sheet is a statement that shows the financial position of a
business that consists of total assets, total liabilities and owner’s equity as of
specific date. Owner’s equity is the residual interest or the amount of the
assets to which the owners have claim, because creditor claims liabilities
legally come first. Owner’s equity in a business derives from two sources:
paid-in capital, which is the investment of cash or other assets in the business
by the owner or owners; and retained earnings, which are the accumulated
profits of the business less the losses and withdrawals.
Projected Cash Flow Statement
Cash flow statement shows the net cash receipts less cash payments. Revenue
does not necessarily mean receipt of cash because some sales are receivables.
And expense does not mean a cash payment because some cost are on credit
terms. Net income and net cash flow are different. For example, taking out a
bank loan generates cash, but this cash is not revenue since no merchandise has
been sold and no services have been provided. Loan repayments consume cash,
but do not reduce income since they are recorded as a reduction to liabilities.
This is a simple check for potential investors or lenders on how the company
will perform.
4.6 Create the company’s five (5) year projected financial statements.

Projected Cash Flow Statement
Cash flow statement shows the net cash receipts less cash payments. Revenue
does not necessarily mean receipt of cash because some sales are receivables.
And expense does not mean a cash payment because some cost are on credit
terms. Net income and net cash flow are different. For example, taking out a
bank loan generates cash, but this cash is not revenue since no merchandise has
been sold and no services have been provided. Loan repayments consume cash,
but do not reduce income since they are recorded as a reduction to liabilities.
This is a simple check for potential investors or lenders on how the company
will perform.

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4. Demonstrate understanding of the 4Ms of operations. https://www.scribd.

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4. Create a Scannable Format

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5. Write a First Draft

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Cost Structure Revenue Streams

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