Research Topic

To investigate an increase in prices at the Westwood Secondary School’s cafeteria

Research Problem (Thesis Statement)

The purpose of this project is to investigate an increase in prices at the Westwood Secondary School’s
cafeteria over the past two years in order to determine the factors which led to such an increase.

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 Objectives
1. To determine the factors responsible for the increase in prices
2. To calculate/assess whether there has been an impact/effect on profitability

Syllabus Objectives
Principles of Business:

Section 6: Marketing

3 Describe the marketing mix – price (pricing strategies)

Section 8: Business Finance

9 Identify the purposes of basic financial records for sole traders

Principles of Accounts:

Section 5: The Preparation and Analysis of Financial Statements of a Sole Trader

6 Use ratios to determine the performance (profitability) of the business

7 Calculate ratios to demonstrate the financial position of the business

Economics:

Section 3: Demand and Supply

2 Identify the market forces

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 Background/Overview
The cafeteria at Westwood Secondary School has been managed by Mrs. Verna Thompson for the past five
years.

Mrs. Thompson has expanded the range of products sold and taken on an additional staff member in the
past year. The cafeteria is the only one in the school and services a population of twelve hundred persons
daily.

Over the last two years, students have been complaining about the marked increase in prices. There are
many factors which can affect price changes.

“Cost push inflation is when the cost of supply rise or the level of supply falls. Either will make the prices rise
in the final good or service if demand remains the same…..Cost push is one of the two causes of inflation.
The other is demand pull inflation, which includes expansion in the money supply.” Amadeo, K. (2018, May
11). Cost-Push Inflation Explained, with Causes and Examples. Retrieved from
https://www.thebalance.com/what-is-cost-push-inflation-3306096.

Price changes can have far reaching implications for the community as it affects the purchasing power of
families whose children attend the school.

This study seeks to determine the factors which were responsible for the increase in. It is of interest to me
because I would like to have my own business one day and I think that conducting this study will help me
have a better understanding of how prices are affected and how changes in prices affect the bottom line.

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 Methodology
In order to collect the required primary data, an interview was scheduled with the owner. The interview
consisted of six (6) questions (see Appendix 1). A scheduled date and time was set. The interview was an
appropriate collection instrument since it was one person who was being questioned.

The books of accounts of the cafeteria were also examined in order to assess the profitability of the
cafeteria. This included source documents, journals, ledgers and final accounts. This secondary form of
qualitative data collection provided evidence relating to how prices have changed the impact of those
changes on the financial statement. Copies of the relevant information were made with the owner’s
permission.

One limitation of the process was the limited time in which I had to collect the data as the free time I had
was the busiest time for the cafeteria so I did not have Mrs. Thompson’s full attention. I therefore had to rely
considerably on the financial information I was provided with.

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 Presentation and Analysis of Data
RESEARCH QUESTION 1: WHAT ARE THE FACTORS RESPONSIBLE FOR THE INCREASE IN PRICES?

On examination of the financial records of the school’s cafeteria and assessment of the interview notes, the
following table was derived:

Expenses 2016/2017 2017/2018 Change $ Percentage

Purchases 30 000 43 500 13 500 45%
Payroll 5 000 6 250 1 250 25%
Rent/Utilities 2 000 2 600 600 30%

Pie Chart Showing The % Increase in Costs

Purchases
Payroll
Rent/Utilities

As can be seen from the table and pie chart above, three major areas where there were increases in cost
were purchasing, payroll and rent/utilities. Purchases recorded a staggering 45%, followed by increases in
rent/utilities at 30% and payroll at 25%.

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RESEARCH QUESTION 2: WHAT WAS THE IMPACT/EFFECT ON PROFITABILITY OVER THE TWO YEAR
PERIOD?

Excerpts of the financial statements for the two years are as follows:

Westwood Secondary School Cafeteria Westwood Secondary School Cafeteria

Trading & Profit & Loss Account Trading & Profit & Loss Account
For year ended 31st July 2017 For year ended 31st July 2018

Sales $ 50,000 Sales $ 49,980

Less Cost of Goods
Less Cost of Goods Sold Sold
Opening stock $ 5,000 Opening stock $ 5,000
Purchases $ 30,000 Purchases $ 43,500
$ 35,000 $ 35,000
Closing stock $ 5,000 Closing stock $ 5,000
$ 30,000 $ 30,000
Gross profit $ 20,000 Gross profit $ 19,980
Expenses Expenses
Salaries & Wages $ 5,000 Salaries & Wages $ 6,250
Rent/Utilities $ 2,000 Rent/Utilities $ 2,600
Transportation $ 5,000 Transportation $ 5,000
General expenses $ 2,000 General expenses $ 2,000
Total $ 14,000 Total $ 15,850
Net Profit $ 6,000 Net Profit $ 4,130

From the two financial statements above, it can be clearly seen that changes in the three areas of cost
identified above, resulted in a decrease of profits from $6 000 in the first year to $4 130 in the second year.
All other costs remained relatively constant over the two year period.

In the interview conducted with Mrs. Thompson, she also indicated that the increase in purchasing was as a
result of increased prices in the products and not because she bought more of the product. She has not
changed supplier over the period and her employee works full time as long as the cafeteria is open.

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 Conclusion
From the tasks undertaken, it can be clearly seen that the factors that caused the prices to increase at the
cafeteria were the increase in purchasing costs and overheads, namely payroll and rent/utilities. This has
had an impact on the net profit of the cafeteria over the two year period.

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 Recommendations
Some recommendations that can be made to Mrs. Thompson to improve her profits are:

1. Source cheaper suppliers for products

2. Buy in bulk to procure discounts
3. Roster employee to work during high activity times only

All of these may result in a lower of costs and an improvement of profits.