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Entrepreneurship 10
Quarter 3 – Module 2 (Lesson 1&2)

Determining Costing and Pricing of

Products and Services
Subject - Entrepreneurship Grade Level- G10
Alternative Delivery Mode
Quarter 3 – Module 2 (Lesson 1&2) : (Determining Costing and Pricing of Products
and Services)
First Edition, 2020

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10
Entrepreneurship 10
Quarter 3 – Module 2 Lesson 1 & 2

Determining Costing and Pricing of

Products and Services
Introductory Message
Welcome to the Entrepreneurship 10 Alternative Delivery Mode (ADM) Module on
(Determining Costing and Pricing of Products and Services)

This module was collaboratively designed, developed and reviewed by educators both
from public and private institutions to assist you, the teacher or facilitator in helping
the learners meet the standards set by the SPTVE Curriculum while overcoming their
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module:

HOW TO USE THIS MODULE

Welcome to the Module “DUTIES AND FUNCTIONS OF AN ENTERPRISE OWNER”. This

module contains instructional materials and activities for you to complete.

The unit of competency “Finalize Evaluated Business Plan” contains the

knowledge, skills and attitudes required for the course Entrepreneurship.

You are required to go through a series of learning activities in order to

complete each of the learning outcomes of the module. Follow these activities on
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ICON

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2
capable and empowered to successfully achieve the relevant competencies and skills at
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The following are some reminders in using this module:

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We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it

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 What I Need to Know

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

1. estimate cost of products and services; and

2. determine pricing of products and services using pricing model.

What I Know

Name : __________________________________________Date : _______________

Grade & Section : ______________________________

PRE TEST

Directions: Let us find out how much you already know about
production cost and pricing of products or services. Answer the
questions below honestly and write the letter and the corresponding answer in
your answer sheet.
1. What is the business condition when the Total Revenue (TR) is greater
than Total Cost (TC)?
a. There is a business loss
b. There is a profit
c. There is no gain and no loss
2. In a laundry shop, when do you give a discount of 10%
a. 5 to 12 kilos of laundry
b. 10 to 13 kilos of laundry
c. 13 kilos of laundry and above
3. It refers to the value set for rendering a service or product for sale or the
amount paid for commodities.
a. cost
b. price
c. profit
4. How much is the price of a bottle of perfume when the cost is P250.00 with
38% Target Profit in Percent (TPP).
a. P299.00
b. P345.00
c. P380.00
5. A method of setting a price according to the values of the products or
services offered to the clients that usually increases when there are
evident results.
a. cost-plus-pricing method
b. return on investment pricing
c. value-based pricing
6. This describes a method of setting up price to target profit from
specific product or service.
a. cost-plus-pricing method
b. return on investment pricing
c. value-based pricing
7. Price is only one factor in purchasing which may lead to the most risky
activity in pricing. This is called _________________________.
a. highest price strategy
b. lowest price strategy
c. moderate price strategy

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 8. What type of costing is direct labor and raw material in production?
a. direct cost
b. indirect cost
c. purchasing cost
9. Expenses on building, machines, maintenance, salaries, office costs,
selling and financial costs are better known as overhead expenses.
Which of the following costing does it fall?
a. direct cost
b. indirect cost
c. purchasing cost
10. It refers to the margin or difference between the cost price and the selling price
of an item.

a. mark-up
b. revenues
c. sales profit

Lesson
ESTIMATE COST OF PRODUCTS
1 AND SERVICES

What’s In

List down 5 names of products and 5 examples of services available in San

Carlos City, Pangasinan.
Products services
1._____________________________________ 1.____________________________
2._____________________________________ 2.____________________________
3._____________________________________ 3.____________________________
4._____________________________________ 4.____________________________
5.____________________________________ 5.___________________________

WORDS TO STUDY
Capital Cost - a payment of interest for the duration of the loan
Cost - represents form of payment
Direct Cost - payment and expenditure made for the production or
service that become part of the product like acquisition
of raw materials and salaries/wages of the workers
Indirect Cost - sum of other expenses or cost generated from the business and
also known as overhead expenses
Material Cost - all materials needed both for direct manufacturing and those
needed for the functioning of the business
Production - process of making or manufacturing goods
Staff Cost - are salaries or wages plus additional costs as payments
or incentive on overtime works, social security, annual
and sick leaves of workers.

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 What Is It
APPLYING THE RULES OF PRODUCTION TO AN ENTERPRISE

The rules of production describe the behavior of the business condition in the aspect
of profit, loss, payment and production. Total Revenue or TR represents income;
while Total Cost or TC reveals expenses.

How will you know when to produce more? When to stop producing? When to
maintain production? Each situation below follows a decision. Remember what to do
in the following instances:

What will be your decision, when the TR (INCOME) of your business is equal to TC
(EXPENSES)?
EXAMPLE: TR = TC

2,000 = 2000

DECISION: There is a need to maintain your production.

What will you do when the TR of your enterprise is less than to the TC?

EXAMPLE: TR = TC

5,000 = 8,000
DECISION: The production needs to stop.

What action do you need to take if you have greater TR than your TC?

EXAMPLE: TR = TC
10,000 = 7,000

DECISION: You have to produce more

COMPUTING THE COST OF THE PRODUCT OR SERVICE OF

YOUR CHOSEN BUSINESS

The cost of the product or service is done on estimate approach. It is vital to list down
and determine the costing to make a product or to deliver a service. It does not
matter how big or small your business is. What is important is to know and estimate
the cost of your production or service delivery. There are factors that cause successful
industries to fail because they are not aware of their costs.
What are the benefits if you know your costs? Look at the chart below and find out
how helpful it is to know the cost of your business:

PRODUCTION COSTS BENEFITS CHECKLIST

1. You can draft your estimates without worries.
2. You can anticipate for estimated profits.
3. You can identify the expensive and cheap materials you need.
4. You can have a chance to do the cost-cutting.
5. You can sense the improvements of your business.

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Now that you know the importance of the production cost, how will you compute for
your costs? Here is how to do it:

➢ List down your needed raw materials

➢ Determine the other raw materials you need in the operation of your
business and services
➢ Specify your estimate for the needed manpower
➢ Come up with the facilities and machineries required in the operation of
your chosen business.
➢ Survey on the quality but cheapest source of materials you need.
After completing your list, estimate for the DIRECT COST and INDIRECT COST your
business is facing. These are the two types of costs. The direct cost refers to the item
which becomes part of the products or services composing material cost, wages and
benefits. The indirect costs are referring to those items needed in running a business
and are better known as overhead expenses. These are the expenses on building,
machines, maintenance, salaries, office costs, selling cost and financial cost.

DIRECT COST COMPUTATION

Description Estimated Cost
Monthly Wage and Allowance for 4 4 workers x P5,000.00 +
workers receiving Php5,000.00 & 1 1 supervisor x P10,000.00
Supervisor receiving Php10,000.00 =P30,000.00/monthly
Yearly Wage and Allowance for P30,000.00 x 12 months
4 workers and 1 supervisor =P360,000.00/yearly
Calculation for the Total Number of 47 weeks x 40 hours/week x 4
Hours spent by the workers in a year workers = 7,520 Hours
Hourly Labor Cost = Total Yearly Wage P360, 000.00/7,520 Hrs.
Bill/total number of hours worked in =P47.87/Hour
a year
Hours needed to complete a wood
bench (it takes only 2 workers, each 4.0 x 2
consuming 4.7 to do it): Labor time = 8 Hours
taken x no. of workers = total no. of
hours
Direct Labor Cost of the wood bench: 8.0 Hrs x P47.87/Hour
No. of Hours x Hourly labor rate = =P382.96
Total labor cost per wood bench =considered – P380.00
To compute for the direct material cost for one wood bench, include the cost of all
other materials and parts in manufacturing as shown in the table below

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Can you compute now for the total direct costs of the bench? Get the sum of the total
direct labor, costs per wood bench, total direct material and costs per wood bench.
Analyze the computation below:

Total direct labor

Costs per wooden bench P380.00
Add: Total direct material
Costs per bench 1,100.00
TOTAL DIRECT COST PER BENCH P1,480.0
The entrepreneur has many other expenses compared to the direct cost. The following
is an example of how to estimate or compute for the indirect cost:

A. INDIRECT COST COMPUTATION

Interest on loan P10,000.00
Insurance of machines/stocks 5,000.00
Maintenance of machines 20,000.00
Power and electricity 24,000.00
Rent of building 25,000.00
Salaries/Wages 60,000.00
Selling cost (transportation/representation) 20,000.00
Telephone 5,000.00
TOTAL INDIRECT COST+20 percent P169,000.00
of 169,000.00 for taxes, etc. + 33,800.00
TOTAL INDIRECT COSTS FOR THE YEAR P202,800.00

If one product is developed by an entrepreneur for the computation of the indirect

cost, the indirect cost is simply the indirect costs divided by the calculated number of
wood benches to be manufactured during the year.

Let us say that the entrepreneur targets for 1,500 wood benches:

P202,800.00 = P135.20
1,500

Computation for the total costs:

Total direct costs per bench P380.00
Add: Total indirect costs per bench 135.20
TOTAL COST PER BENCH P515.20
The entrepreneur’s computation of the wood bench is based on 1,500 sales units
for a year. If there will be no increase in indirect costs, then the indirect cost
will be:
P772, 800 = P 515.20
1,500

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The total cost of the bench now becomes:
Direct cost per bench P380.00
Add: Indirect cost per bench 515.20
TOTAL COST PER BENCH P895.20
Computation for the total costs:

Total direct costs per bench P380.00

Add: Total indirect costs per bench 135.20
TOTAL COST PER BENCH P515.20

The entrepreneur’s computation of the wood bench is based on 1,500 sales units
for a year. If there will be no increase in indirect costs, then the indirect cost
will be:
P772, 800 = P 515.20
1,500
The total cost of the bench now becomes:

Direct cost per bench P380.00

Add: Indirect cost per bench 515.20
TOTAL COST PER BENCH P895.20

LET US REMEMBER

The rules of production are helpful to the entrepreneurs. These will guide
him to know what and how to decide on his production. It tells when they need
to produce more, when to stop production or when to maintain the production.
Likewise, it is good for all the business enterprises to know the computation of
their production to avoid failure of business operations.

What’s More!

A. Given the following nominal values of revenues and

costs, decide whether you need to produce more, stop your production or maintain
production of goods or services. Draw an upward (↑) arrow if your answer is to
produce more; downward arrow (↓) when you need to stop and draw a smiley
face (☺) when your decision is to maintain production.

BUSINESS TR TC ENTREPRENEUR’S
NO.
NAME (INCOME) (EXPENSES) DECISION
1 Son’s Academy 18,000 21,000
2 Sea-Bricks Co. 24,500 19,000
3 Jay’s Fashion Shop 15,880 15,880
4 Jr/Sr Internet Café 6,800 8,300
5 Celjun’s Transpo 22,100 15,500

B. Compute for the cost and analyze the following problems. Write your answers inside
the box. Show the solution in a separate sheet to arrive at the correct answers.

1. If you have two (2) workers receiving each a daily wage of P250.00 a
day, with 5 working days a week, how much is your total wage bill for
a month? ANSWER/SOLUTION: ______________________________

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 2. Based on your answer in number 1, how much is your annual wage
cost of production? ANSWER/SOLUTION: _________________________

3. How much will be your total direct costs per bench if the total direct
labor is P200.00 and the total direct material is 450?
ANSWER/SOLUTION: ____________________________________________

4. What is 25% of the assumed P150, 000.00 indirect costs?

ANSWER/SOLUTION: ____________________________________________

5. As an entrepreneur, what will you expect for a cost of a unit of wood

bench when you target for 2,000 unit yearly sales with P225, 000.00
total indirect costs for the year? ANSWER/SOLUTION:
___________________________________________________________________

What I Have Learned

Directions: Copy the letter of the correct answer on your answer sheet.
1. This is the time when you need to decide to maintain your production.
a. When the TR is equal to TC
b. When the TR is greater than TC
c. When the TR is lesser than TC
2. It refers to the situation when you need to decide to produce more when

the _________.
a. TR is equal to TC
b. TR is greater than TC
c. TR is lesser than TC
3. Time may come when you really need to decide to stop your business
production. When the ___________.
a. TR is equal to TC
b. TR is greater than TC
c. TR is lesser than TC
4. It is the way you calculate or estimate the cost to have for a product.
a. costing
b. pricing
c. producing
5.The direct labor cost and direct raw material costs are under which type of
production cost?

a. direct cost
b. indirect cost
c. purchasing cost

What I Can Do
A.In your answer sheet, write at least 5 particulars of the direct and indirect costs of
any service type or production business.

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 DIRECT COST INDIRECT COST
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.

DETERMINE PRICING OF
Lesson
PRODUCTS AND
2 SERVICES USING PRICING
MODEL

WHAT IS THE LESSON ABOUT?

In this lesson, you will appreciate how to decide for the market price of
your products or services and choose your own pricing strategy.

WHAT WILL YOU LEARN?

At the end of the module you should be able to:

1. Come up with a pattern of computation to price your own

products or services; and
2. Compute for the price of your own business products or
services.

LET US STUDY

WORDS TO STUDY
Mark-up represents the difference between what is paid for the
merchandise and its end price to the clients
Pattern refers to an outline or model of one thing
Price indicates value of a commodity or service in the form of money
Product the result of the input and process in the form of output
Services is a type of business that has no product but purely services
Strategy is an approach or method used in business

Pricing strategy is a part of the pricing system wherein the government

becomes alert against those who are abusing and making unreasonable prices.
Keeping an enterprise pattern when it comes to pricing of commodities and
services, serve as guide for the entrepreneurs to understand how their prices are
computed objectively. However, lowest price approach is the most risky activity
in pricing and it should be avoided.
The key secret of the business firms to compete for the price is through the
various pricing strategies. Giving focus on the competition for cleanliness,

12
convenience, delivery, easy credit options, guarantees, quality, safety and service
are only secondary concerns.
As a young entrepreneur, what is your idea about the different pricing
strategies? You may consider one of the following pricing strategies if you still
do not have your own strategy:
• Value-based pricing (price increases when there are evident results)
• Posting P9.95 instead of P10; P24.50 instead of P25.00; and others
• Value pack (mixture of clustered products with varied prices in one pack or
bag)
• Cost-plus-pricing method (setting up price targeting specific profit)
• High Price Approach aiming to set quality and status. It is also called as
prestige strategy
• Penetration market is common to the new entrepreneurs. They are doing
it in order to establish market and build up more customers.
• Free tasting (Sampling Approach)
• Result pay scheme (Trial Method)

Before you do the final pricing, you have to know the value of the total
revenues (TR) and the total costs (TC). When TR is greater than TC, your business
gained profit. If the TR is lesser than TC, it is loss. In instances that the TR and
TC are equal, there is neither profit nor loss. It is called break-even. Break even
analysis is used as an instrument or a tool to solve managerial problems helpful
among business leaders and economists.
Here are some models in pricing goods and services. These will help you
to know how you can compute prices of your own product and service business.
Find out if this pricing scheme is appropriate to use in the production of your
business:

1. Percentage Allocation Approach (PAA). This is good for product

business. Decide for the percentage value to be added to the actual cost
of your product or service. Below are examples:

A. Unit Cost of Product (UCP), TVE T-Shirt = P55.00

Target Profit in Percent (TPP) =40%
COMPUTATION = UCP + TPP
= P55.00 x .40 = P22.00
= P55.00 + P22.00
UNIT PRICE = P77.00
B. Volume Cost of Product (VCP), TVE T-Shirt by Volume Target Profit
(VTP) per dozen of Quantity (Q):
1 to 5 dozens = 38%
6 to 10 dozens = 35%
11 to 15 dozens = 32%
16 dozens & above = 30%
COMPUTATION for 1 to 5 dozens (maximum based) of TVE T-Shirts:

VCP = UCP + VTP x Quantity (Q)

= P55.00 + 38% x 60
= P55.00 + 20.90 x 60
= P75.90 x 60
VOLUME PRICE = P4, 554.00
UNIT PRICE = P75.90
COMPUTATION for 5 to 10 dozens (maximum based) of TVE T-Shirts:

VCP = UCP + VTP x Quantity (Q)

= P55.00 + 35% x 120
= P55.00 + 19.25 x 120
= P74.25 x 120

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VOLUME PRICE = P8, 910.00
UNIT PRICE = P74.25

2. Average Mark-up Approach (AMA). This is appropriate to the service type

of business. Mark-up consists of damaged merchandise, employee
discounts, markdowns, operating expenses, profits and shortages. This is
common in industries but differ in the way they execute it supported by
company rules and policies.

Here is how to compute for the pricing of a service type of business.

a. Assume that you are operating a laundry service business

b. Decide for 60% profit against actual cost of every laundry service,
where 20% intends to support and finance some operating expenses
like damaged merchandise, employee discounts, markdowns, operating
expenses, profits and shortages.
c. Consider a 40% mark-up to be added to the cost of the service

Price of laundry service per kilo:

Cost of laundry = P20.00

General Markup = 60%
*40% Target Profit (TP); 20% Operating Expenses (OE)

PRICE = Cost of laundry + TP + OE

= P20.00 + 40% + 20%
= P20.00 + P8.00 + P4.00
= P32.00

When you compute for 5 to 10 kilos (maximum based) of laundry service,

rendered to a single client, you may charge her/him with a friendly discount of
5% from the total charge. When you do it, it will not bring any business loss to
you but an investment of a good reputation and goodwill.

Let us find out how much you will sacrifice to invest for a possible goodwill
using the data above:
Unit price per laundry service P32.00 x 10 kilos -5% discount/10
= P32.00x10-5% /10
= P320.00-P16.00/10
= P30.40

Therefore, goodwill investment capital for 10 kilos of laundry service is only

P1.60 (P32.00 unit price less P30.40 discounted price) per kilo of laundry service
rendered to your customer.

It is suggested that the following goodwill investment package chart be

applied on your laundry business. You may also change it for further
improvement of your services:

a) 100% service fee of P32.00 per kilo of laundry

b) 5% discount from 5 to 12 kilos of laundry
c) 10% discount from 13 kilos and above of laundry

LET US REMEMBER

As a future entrepreneur, you have to value the importance of

honest and accurate computation in pricing. Pricing policy will help

14
every entrepreneur. The use of models or standard samples of computation will
facilitate the correct pricing procedure.

LET US APPLY WHAT YOU HAVE LEARNED

1. Assuming that you need to supply a school canteen of bottled mineral water,
500 ml with a cost of P6.50/bottle, how do you determine the price per bottle?
Please explain your answer below by showing the computation.

COMPUTATION:

2. If you will compute for the service of a doctor’s professional fee of P380.00 per
consultation (inclusive of the clinic rental, bills, etc.) how much will the doctor’s
consultation service be? Discuss your answer below by showing the
computation for 60% general mark-up.

COMPUTATION:

HOW MUCH HAVE YOU LEARNED FROM THIS LESSON?

Directions: Copy the letter of the correct answer in your answer sheet.
1. If you have 10 jackets for P180.00 unit cost, how much will be the unit
price at 40% Target Profit in Percent (TPP)?
a. P272.00
b. P295.00
c. P252.00
2. Compute how much will be the price of a bottle of perfume when the cost is
P250.00 with 38%TPP?
a. P380.00
b. P299.00
c. P345.00
3. With 10% discount incentive, what will be the unit price of 10 kilos
laundry if the service is P32 per kilo?
a. P320.00
b. P232.00
c. P288.00
4. In a laundry shop, when do you give a discount of 10%
a. 5 to 12 kilos of laundry
b. 10 to 13 kilos of laundry
c. 14 to 15 kilos of laundry

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 5. What is the effect in business when the TR is lesser than the TC?
a. There is a business loss
b. There is a profit
c. There is no gain and no loss

POST-TEST

Directions: Let us find out how much you have learned about
production cost and pricing of products or services. Answer
the questions below honestly and write the letter and the word
of your answer in your activity notebook.

1. What is the business condition when the TR is greater than TC?

a. There is a business loss
b. There is a profit
c. There is no gain and no loss
2. In a laundry shop, when do you give a discount of 10%?
a. 5 to 12 kilos of laundry
b. 10 to 13 kilos of laundry
c. 13 kilos of laundry and above
3. It refers to the value sets for rendering a service or product for sale or
the amount paid for commodities.
a. cost
b. price
c. profit
4. How much is the price of a bottle of perfume when the cost
is P250.00 with 38%TPP.
a. P380.00
b. P299.00
c. P345.00
5. A method of setting a price according to the values of the products or
services offered to the clients that usually increases when there are
evident results.
a. cost-plus-pricing method
b. return on investment pricing
c. value-based pricing
6. This describes a method of setting up price to target specific
profit from specific product or service.
a. cost-plus-pricing method
b. return on investment pricing
c. value-based pricing
7. Price is only one factor in purchasing which may lead to the most risky
activity in pricing. This is called _________________.
a. highest price strategy
a. lowest price strategy
b. moderate price strategy
8. What type of costing is the direct labor cost and raw material in production ?
a. direct cost
b. indirect cost
c. purchasing cost
9. Expenses on building, machines, maintenance, salaries, office costs, selling
cost and financial costs are better known as overhead expenses. Which of the
following costing does it fall?
a. direct cost
b. indirect cost
c. purchasing cost

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10. It refers to the margin or difference between the cost price and the selling price of
an item.
a. mark-up
b. revenues
c. sales profit

Additional Activity

Essay : Make a reflection on the importance of determining costing and pricing of

products and services in a business. Make 3-5 good sentences only. Be guided by the
following rubrics:

Originality - 10%
Content - 5%
Organization of Thoughts - 5%
TOTAL - 20

RESOURCES:
Models in Pricing Goods and Services
Rules of Production Chart
Production Cost Benefits Checklist

REFERENCES:
Fajardo, Feliciano R., Entrepreneurship
Jorge A. Camposano, Jorge A., MBA, Ph.D., Entrepreneurship for Modern
Business
San Gabriel, Nati C., Business Finance and Business Firms
SEDP, Business Management
Teneza, Celedonia T., Ed.D., Worktext in Technology & Livelihood
Education in Business Management III, published by Shekinah
Publishing and Printing Press Co., Copyright, 2006
Teneza, Celedonia T., Ed.D., & Baes, Ma. Gradiva S., Worktext in
Technology & Livelihood Education in Business Management IV,
published by Shekinah Publishing and Printing Press Co., Copyright,
2006

Villanueva, Cristina R. & Rojo, Luz V., Technology & Livelihood

Education

Internet Sources:
www.wikipedia.com
www.econolib.org
www.brittanica.com

Manu, George et. al., How to Elaorate One’s Own Business. International Training
Center of the ILO, 2005

Internet Source:
www.agripinoy.net/making

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