nixon moyo Final draft dissertation_

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MIDLANDS STATE UNIVERSITY
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
The Impact of rising costs on organizational performance
A case of Colouresell Furnitures
BY
Moyo Nixon
Registration number R113269V
This dissertation is submitted in partial fulfillment of the requirements of the Bachelor of
Commerce Honours Accounting Degree Program at Midlands State University
Gweru: Zimbabwe, May 2015

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APPROVAL FORM
The signatory below confirms that they supervised Nixon Moyo on a dissertation titled:
Impact of rising costs on organizational performance :A Case of Colouresell Furnitures.
The dissertation was submitted in partial fulfillment of the requirements of the Bachelor of
Commerce Honours Degree in ACCOUNTING at Midlands State University.
…………………………………. ………………………………
SUPERVISOR DATE
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CHAIRPERSON DATE
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EXTERNAL EXAMINER DATE

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RELEASE FORM
NAME OF STUDENT Nixon Moyo
DISSERTATION TITLE Impact of rising cots on organizational
performance : A Case of Colouresell
Furnitures .
YEAR THIS DEGREE GRANTED: 2015
Permission is hereby granted to the
Midlands-State-University-Library to
produce- single-copies of this dissertation
and to-lend or sell such-copies for private,
scholarly-or-scientific-research purposes-
only. However , author maintains all other
publication.
SIGNED ………………………………...
PERMANENT ADDRESS 3648 Brahim Street Rimuka High Infill
Kadoma Zimbabwe
DATE

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DISCLAIMER
The interpretations or solid reports in this study by any way do not represent university’s
statements or the project supervisor and in any way are not predestined to insult anyone
person, institution or organization but rather there are preordained only for academic
purposes.

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DEDICATION
This research dissertation is dedicated to my dearly loved Parents for always believing in me.
Thank you for all the support provided.

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ACKNOWLEDGEMENTS
Above all I would like to thank the Almighty God for his strength and the far he has
brought me. I would like to record my sincere gratitude of appreciation to the management
and staff of Colouresell Furnitures for assisting me and helping with information in
regard to my research study and members of my family for their moral support.

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ABSTRACT
Coloursell Furnitures has been experiencing rising operational costs from the past four
years ranging from 2011 to 2014 financial period . To this effect this led the author to
investigate the impact of rising costs on organizational performance . Relevant literature
was reviewed to analyze the impact of rising costs on performance of the entity . The
multi regression analysis was used to test the relationship which exists between rising
costs and profitability using SPSS software .It was discovered that rising operational
costs have a negative relationship with performance of the entity although other factors
need to be considered such as current economic factors and challenges in the industry.

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TABLE OF CONTENTS
CHAPTER SECTION DESCRIPTION PAGE
Approval form I
Release form ii
Declarations iii
Dedications iv
Acknowledgments V
Abstract vi
ONE INTRODUCTION
1.1 Background of study 1
1.2 Statement of the problem 3
1.3. Main research question 3
1.3.1 Sub research question 3
1.4 Research objectives 3
1.5 Assumption of the study 4
1.6 Significance of study 4
1.6.1 To the organization 4
1.6.2 To the researcher 4
1.6.3 To the university 4
1.7 Limitation of study 5
1.8 Delimitation of study 5
1.9 Definition of terms 5
1.10 Summary 6
TWO LITERATURE REVIEW
2.0 Introduction 7
2.1 Challenges faced by the retail industry 7
2.1.1 Competition 7
2.1.2 Insufficient supply chain 8
2.1.3 Changing customer behavior 9
2.1.4 Advertising 10

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2.2 Impact of rising costs on organization performance 10
2.2.1 Reduced profits 11
2.2.2 Failure to expand operations (growth} 12
2.2.3 Declining revenues 13
2.3 An effective cost reduction program 15
2.3.1 Team work 15
2.3.2 Identifying and ranking current costs 16
2.3.3 Evaluate the importance of each cost item 17
2.3.4 Monitoring and implementing action plans 18
2.3.5 Risk factors involved 19
2.4 Methods of reducing costs and improve profits 19
2.4.1 Budgeting 20
2.4.2 Activity Based Costing 21
2.4.3 Benchmarking 23
2.4.4 Target Costing 24
2.5 Summary 26
THREE RESEARCH METHODOLOGY
3.0 Introduction 27
3.1 Research design 27
3.1.1 Descriptive research design (survey method) 27
3.2 Population 28
3.3 Sampling and sample size 28
3.4 Sampling technique 29
3.5 Data sources 30
3.5.1 Primary data sources 30
3.5.2 Secondary data sources 30
3.6 Research instruments 31
3.6.1 Interviews 31
3.6.2 Questionnaires 32
3.7 Validity 32

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3.8 Reliability 33
3.9 Regression model (multiples regression model} 33
3.10 Data analysis 34
3.11 Data presentation 34
3.12 Summary 35
FOUR DATA PRESENTATION AND ANALYSIS
4.0 Introduction 36
4.1 Survey response rate 36
4.1.1 Gender response 37
4.2 Level of experience with Colouresell 38
4.3 Which department do you fall in 39
4.4 Is Colouresell Furnitures experiencing rising
operational costs
40
4.5 Challenges faced by the retail industry 41
4.6 Effects of rising operational costs on the
performance of Colouresell
43
4.7 Is cost control and cost reduction a necessity 46
4.8 Factors to consider in initiating a cost reduction
program
47
4.9 Methods to control and reduce costs 50
4.10 Cost reduction an effective way of minimizing costs 52
4.11 Other information necessary concerning this topic 53
4.11.1 Current economic challenges 53
4.12 Interviews 53
4.13 Quantitative Analysis (regression results) 57
4.14 Summary 65
FIVE SUMMARY, CONCLUSIONS AND RECOMMANDATIONS
5.0 Introduction 66

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5.1 Chapter summaries 66
5.1.1 Chapter one 66
5.1.2 Chapter two 66
5.1.3 Chapter three 67
5.1.4 Chapter four 67
5.2 Research findings 67
5.2.1 Challenges faced in retail sector 67
5.2.2 Impact of rising costs on organizational
performance
68
5.2.3 Factors to consider in an effective cost reduction
initiative program
68
5.2.4 Methods of reducing costs and improve profits 69
5.3 Research conclusion 69
5.4 Recommendations 70
5.5 Further areas of study 70
References 77

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LIST OF TABLES
SECTION DESCRIPTION PAGE
1 Relationship of profits to costs 2
3.1 Sample size 29
4.1 Respondents from questionnaires and interviews 36

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LIST OF FIGURES
SECTION DESCRIPTION PAGE
Fig 4.1 Gender 37
Fig 4.2 Period of employment 38
Fig 4.3 Department 39
Fig 4.4 Experiencing rising costs 40
Fig 4.5 Challenges faced by the retail sector 41
Fig 4.6 Comparison of impacts to performance 43
Fig 4.7 Is cost control and cost reduction a necessity 46
Fig 4.8 Factors to consider in a cost reduction program 47
Fig 4.9 Comparison of the methods 50
Fig 4.10 Cost reduction an effective way of minimizing costs 52

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LIST OF APPENDICES
SECTION DESCRIPTION
Appendix 1 Regression data set
Appendix A Letter of introduction
Appendix B Questionnaire
Appendix C Interview guide

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CHAPTER 1
1.0 INTRODUCTION
The aim of this chapter , is to highlight the reasons for undertaking this research study and
to give evidence why this research is essential by giving the background of the study,
the motivation which is the problem statement , research objective ,delimitation , limitation
of study , significance of study , assumptions , research questions and definition of terms.
1.1 BACKGROUND OF STUDY
Parker et al (2011) points out that enterprises are always seeking to cut costs and
optimize resource utilization. In the same vein ,Rutsito (2014) cites out that , in this harsh
Zimbabwe’s economic environment ,the survival of any business is based on maximizing
profits while minimizing costs. Therefore the need to strategically reduce costs is more
compelling than ever .
Continuously rising costs are a problem in the furniture retail industry as evidenced by
the CEO of TN Harlequin Mr. T Nyambirai when he alluded that his organization was
facing the problem of rising operational costs and reduced revenue (Kadzere ,2014) .Mr.
Hungwe the management accountant of Colouresell Furnitures echoed the same for the
furniture company when he indicated that escalating costs have been experienced for the
past four years (Management Accounts meeting minutes ,2015). The following table from
Colouresell Furnitures management accounts reports shows how costs are increasing
while profits are declining:

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Table 1: Relationship of profit to costs
Source :Management Accounts Report January (2015)
From the above table it can be clearly seen that the total costs are increasing from
18% ,27% and 36% in 2011-2014 respectively . With the evidence above , the operations
and admin costs contributed a greater percentage towards the rising of total costs posting
37% increase in 2014 trading period thereby causing reported profits for 2014 to
decrease by $1 409 057.74 compared to 2013 profit .A close analysis revealed the
following breakdown of expenses which were advertising ,fuel ,maintenance and repairs
,telephone costs which are contributing a greater percentage towards the rise in both
operational and selling costs (Financial Accountant report ,2015)
The Managing Director Mr. T Mharadze cited that , despite the fact that Colouresell
Furnitures has increased its market share , the rate at which the costs are rising as
compared to the rate at which profits are declining need to be looked into as this is
affecting the organization’s performance. This was due to the fact that Colouresell
deteriorated its profits by 63% in 2014 and also in 2013 their profits decreased by 27%
whilst in 2012 they only reduced by 3%.
2011 % change 2012 % change 2013 % change 2014
Gross profit 4 191 217.17 3% 4 323 523.92 -8% 3 959 607.65 -12% 3 498 734.12
Total Costs (1 032 520.78) 18% (1 259 618.91) 27% (1 722 278.54) 36% (2 670 462.75)
Selling & Distr costs 411 879.47 20% 514 849.34 24% 679 601.13 33% 1 012 605.68
Opera & Admin costs 620 641.31 16% 744 769.57 29% 1 042 677.41 37% 1 657 857.07
Retained profit 3 158 696.39 -3% 3 063 905.01 -27% 2 237 329.11 -63% 828 271.37

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To this end ,authoritative scholars have written about the analysis of cost containment
and cost reduction strategies on rising operational manufacturing costs (Osadi et al
:2010),Pittman et al (2013),ludy (2010) , Keller (2010) and Bragg (2010)..In this regard ,the
researcher tries to close the gap between just analyzing rising costs, costs control , cost
reduction strategies from a manufacturing sector point of view and bring new information
on the impact of rising operational costs and the strategic implementation of cost
reduction strategies from a retail sector perspective .
1.2 STATEMENT OF THE PROBLEM.
Colouresell Furnitures profits have significantly reduced to unacceptable level for the past
four years due to continuous increase in its total costs. Therefore ,this has led the
researcher to investigate how strategically can Colouresell implement cost reduction tools
without affecting its operational structure.
1.3.1 MAIN RESEARCH QUESTION
 What cost reduction strategies can Colouresell employ to control costs.
1.3.1 SUB RESEARCH QUESTIONS
 What are the challenges faced in the retail industry
 What effects can the rise of costs have on the operations of the organization
 What factors should Colouresell consider in initiating cost reduction program
 What other forms or ways can Colouresell Furnitures use to minimize its costs
1.4 RESEARCH OBJECTIVES
 To investigate the challenges faced in the retail industry
 To investigate the impact of rising costs on organization performance

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 To establish an effective cost reduction initiative program
 To establish methods of reducing costs and improve profits.
1.5 ASSUMPTIONS OF THE STUDY
 Continued use of the multi-currency system
 No changes made to current operational organization structure
1.6 SIGNIFICANCE OF STUDY
1.6.1 To the organization
The study will help Colouresell Furnitures to comprehend the effects of high
operational costs on retained profits .In the same vein , the study will also help
Colouresell Furnitures to acquire other ways of reducing its total costs.
1.6.2 To the researcher
The research is of paramount importance as it will enable the researcher to gain more
skills in research methodology . The research will also add more aspects on theoretical
and practical appreciation on the relevance of cost control and reduction towards
achieving maximum profits .
1.6.3 To the University
The research under study will provide the university with reference for future studies
under the same research area .

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1.7 LIMITATION OF STUDY
Lack of enough financial resources on the part of the researcher will act as a barrier
on the scope that will be covered by the research. However , the researcher has managed
to liaise with the company under study to receive any information required through the
use of email. On top of that , the company also agreed that the researcher can print his
copies using company printer at the nearest branch to him for the purpose of reducing
costs.
1.8 DELIMITATION OF STUDY
The study will be based on Colouresell Furnitures .
The study will only focus on analyzing the impact of rising costs on Colouresell
Furnitures performance and consequently reducing these costs
Information which will be used in the study will be sourced from Colouresell
Furnitures `s head office and the branches .
The information that will be used is from 2011 - 2014 trading periods.
1.9 DEFINITION OF TERMS
COST –Is any monetary value given up to obtain a good or a service .
COST DRIVER –Is any activity that causes the cost to occur. In other words ,a
cost driver is a catalyst that triggers a cost to happen.
COST CONTROL –This is a management tool aimed at improving and reducing the
occurrence of costs in the production of income .

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COST REDUCTION - This is a management technique employed to scale down
occurrence of expenditure
1.10 SUMMARY
This chapter tried to introduce the story behind by first highlighting the problem being
faced by the company through the background of study. The chapter later on gave the
problem statement ,main research question ,sub research questions ,objectives and the
assumption of study .The following chapter will now look at the relevant literature of the
subject under study.

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CHAPTER TWO :LITERATURE REVIEW
2.0 INTRODUCTION
The aim of this chapter is to highlight the literature content that has been cited by
scholars with regard to analyzing the impact of rising operational costs on organization
performance .To this end , the chapter will focus on answering the research objectives as
highlighted in chapter one in their respective sequence.
2.1 Challenges Faced by the retail industry.
The retail industry like any sector in an economy has challenges which hinder the sector
from performing well. Among the many problems experienced by the industry, the
following list will be discussed which are :competition, inefficient supply chain ,changing
customer behavior and lack infrastructure and logistics.
2.1.1Competion
Ndife (2014) mentioned that one of the problems facing the industry is stiff competition
from both new players and existing players. The scholar further went on to cite that due
to increased competition within the industry, this had led many organizations to report
low profit margins since there is a split in the market share. According to E-commerce
report (2011) they point out that the negative effects of competition in the retail
industry were that they force many organizations to further reduce their prices off which
the retail industry naturally has the lowest mark ups .Nevertheless ,their low mark ups are
further reduced by stiff competition in the industry thereby making retailers report low
financial performance.

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However ,Fung Business Intelligence Center(2013) argue that competition in any industry
is of great importance as it enables all players in that industry to improve their
operations as well as their value to customers. Guest (2012) in his article 4 reasons why
competition can benefit your business cite that stiff competition also enables
organizations to be innovative and provide differentiated products and services so that
the organization always stays ahead of its competitors.
2.1.2Inefficient supply chain
Chan (2010) assert that one of the major problems in the retail sector is to manage its
distribution channel. The author pointed that the retail industry is faced with this
problem mainly because of many suppliers who supply different products Nevertheless
Shojaie and Nasirian(2015) they assert that ,for an organization to remain sustainable in
this increasing harsh economic environment is to be able to provide its product to
customers in a timely manner. According to Chan (2010) a traditional way of distribution
of goods is from one supplier and straight to the warehouse or customer. Tammela and
Canen(2010) echoed the same by citing that the furniture retail industry is experiencing
inefficient supply chain problems because they have long delivery times and unrealistic
schedules.
However ,Kama and Kumar(2014) and Shjaie and Nasirian(2015) argue that inefficient
supply chain problems faced by the retail sector is due to the fact that they lack sense
of agency when executing their duties and also when they plan their delivery routes. The
same view was supported by Berry(2011) by citing that organizations who want to be

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valued as the best in the industry would and also who want to build a strong name will
put much emphasis and effort on being time conscious.
2.1.3 Changing customer behavior
According to Raham(2014) he asserts that the retail industry is in the crisis of facing
changing customer buying patterns and behavior. According to the scholar ,the 21st
century customer is expecting an integrated experience in all respects from the retailer.
Henceforth ,if the retailer fails to provide this integrated experience ,then ,the retailer will
become irrelevant. Schiffman and Kanuk (2010) had the opinion that the reason why
consumers are changing their behavior especially in the retail sector was due to the fact
that they have perfect knowledge in all respects. Therefore they are able to make informed
decisions well before they commit their hard earned cash .Ansley (2014) pointed out that
customers are becoming more and more difficult to define, reach or even put into groups
because of value systems based on cost benefit analysis.
However ,Uddin (2012) and Berry (2011) argued that the reason why most retailers are
facing the challenge of changing customer behavior is that this industry lacks research on
customer preference and perceptions. According to the scholars, this is why the retail
industry claims that customers are changing their behavior off which it’s their lack of
knowledge towards their customer base. According to Mohani (2013) he also asserts that
lack of adequate data on the customer spending patterns will prevent the industry from
growing.

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2.1.4Advertising
Neha (2013) in his article “Retail marketing in the new millennium” asserts that if retail
companies aspire to create a good image in the face of the customer ,they have put
much emphasis on advertising their products as well as their corporate image. The
scholars argument was that due to stiff competition in the industry ,the other way to
lure customers is advertise extensively. In support of that view ,the Retail forum for
sustainability(2010) also assert that advertising creates good communication between the
organization and its customers. Thus it enables the organization to clearly define what it
is capable of supplying to its customers. Nevertheless , Morgan(2014) argue that,
traditional advertising is becoming a problem in the retail sector as it is failing to bring
back the anticipated positive results.
However ,Kristie (2014) argue that despite the fact that advertising creates good image
and good communication with the customer, they point out that advertising does not
guarantee positive results to the organizing .Their assertion was that ,the magnitude and
the way the customer perceives the organization is not measurable and hence its link to
reported profits is also not revealed. Randall and David (2011) then point out that the
organization cannot have control over such a problem (variable) henceforth ,the effects of
advertising can be recognized in the long run.
2.2Impact of rising costs on organization performance
Bragg(2010) asserts that the purpose of any organization to engage into any commercial
activities is to make sure that they yield positive results at the end of each trading
period. According to the author , every organization strives to achieve shareholders wealth

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maximization. To this end , Hongren (2010) ,alludes that organizational performance is
measured by analyzing three elements which are profit , growth and revenues. Thus ,if an
organization fails to attain maximum profits hence they have failed to perform and also
if an organization fails to expand its operation over a given period of time ,they have
failed to perform and he also alluded that if an organization fails to collect maximum
revenues from its customers then they have failed to perform.
Siyanbola and Raji (2013) support the views cited by Bragg(2010) and Hongren(2010) by
pointing out that cost and profitability in business activities constitute a greater portion
of what determines the financial position of the entity. This is because management is
much interested in business performance which is profitability and higher revenues
Henceforth , the need to yield high revenues and consequently high profits will facilitate
the increase in production capacity especially in a manufacturing company which will in
turn facilitate an increase in operational cost. A detailed review of profit ,growth and
revenues as they are directly affected by the rise of operational costs is as follows:
2.2.1 Reduced Profits
As alluded earlier by Hongren (2010) , Ludy (2010) points out that the major reason for
the existence of any organization is to maximize profits. Thus ,if an organization incurs
or experience high operational costs then this will erode the end result which is the
profit. Therefore all companies in any industry should put a close eye on their operating
expenditures since these expenses have a significant effect on their reported profits.
Bragg(2010) supports the view cited by Ludy(2010) pointing out that profit maximization
is the key element and should be the first priority at an organizations agenda. The

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scholars argument was that , as long as profit making organizations fail to prioritize
profit maximization then that organization would have missed the mark of why they are
operating since they have failed to achieve their major objective. Furthermore he cites that
high operational costs have a direct bearing on profitability. Henceforth ,every
organization should try to put maximum effort in trying to reduce and also control its
spending behavior as this directly shrinks company profits and eventually performance.
However ,Siyanbola and Raji (2013) concluded that as management aspires to enjoy high
profits from its operational activities , it should bear in mind that this will trigger an
increase in its operational costs therefore cost control and reduction methods should be
in place to ensure that they have value for shareholders investments.
2.2.2 Failure to expand operations (Growth)
Bragg(2011) assert that ,as the organization grows , management should expect their
operating figures to rise as they will be aligning to the expansion of the organization.
Thus what is important is to monitor the increase of these operational costs as they have
an impact on the organizations performance. The scholar further points out that that an
increase in operational costs should not be avoided rather management should control
their spending behavior as this has a direct effect on the growth of organization.
However ,Shah and Malik(2011) and Hongren (2010) points out that growth of the
organization is in different dimensions. The scholar cited that growth of an organization
can be by way of increasing the market share ,an increase in the purchase of assets ,an
increase in production or even investment in capital assets. According to the author , an
increase in market share will facilitate an increase in operating expenditure like

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advertising and high rentals especially if the organization wants to increase its market
share by way of opening up new branches. The scholar alluded that as the organization
experiences high operating costs then ,chances are high that the organization will fail to
expand their operating structure since much of the resources will be channeled towards
the expenses .Henceforth ,Bragg (2010) then cite that ,for the organization to be able to
expand its operating activities it should bear in mind that they should control and
contain operating costs.
Ludy (2010) supports the view asserted by Bragg (2010) and Hongren (2010) by pointing
out that an increase in operational costs will usually dilute the cash flow of the
organization .Therefore as the organization has insufficient funds then expansion of the
operating activities will not be possible. The scholar cited an example of purchase of
assets by the organization by pointing out that this type of expansion will not be
undertaken if the organization has insufficient funds. The author gave a remark that an
increase in operating costs should be controlled as this affects growth of the
organization.
2.2.3Declining Revenues
According to Ludy (2010) , before an organization experiences profit or rather growth
,they have to first collect enough revenues from their customers. However , revenues do
not emerge to the organization without a corresponding incurrence of expenditure .The
author argues that for the organization to enjoy economies of scale due to growth , they
have to post a reasonable revenue figure .Nevertheless ,operational costs have to be
incurred in order to make available for sale the products or goods or services to

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customers .The notion asserted by Bragg(2011) and Hongren (2010) that incurring expenses
in the production of income is not a problem but what is important is to monitor their
spending patterns since operational costs have a direct impact to the organizations
performance .
Bragg (2011) points out that the increase in operational costs can significantly affect the
revenue figure through product pricing. His notion was that as the operational cost
increase , management will be forced to sale their products at a much higher price as
they will be trying to recover their cost of production or rather their cost of making the
goods available to their selling point .Therefore ,the resultant price of the product will be
high which might cause customers to reduce their spending towards the purchase of the
product thereby reducing the revenue figure .The same notion was cited by Siyanbola and
Raji (2013) that the increase of operational costs will be felt or shown by the
organization’s pricing of products as the organization will pass on the resultant effect to
the customer and thereby severely contributing to the decline in sales value since
customers will tend to purchases less of the products. Henceforth ,operational costs should
be managed with care as they are linked to the performance of the entity.
However Kotler(2009) and Ogbadu(2009) and argue that declining revenues are not only
caused by increasing operating costs rather there are other factors which can also hinder
the revenue of an organization like poor marketing strategies .According to the authors
,poor marketing strategies can significantly affect an organizations revenue.

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2.3 An effective cost reduction initiative program
According to Moorhouse (2011) they point out that cost reduction is an extension of the
daily activities performed within the organization like operational activities and the
carrying out of financial or human resources activities. In their view ,cost reduction needs
a technique or approach which will be fully monitored and managed in accordance with
organizational strategy. Henceforth, it requires a positive ,well though plan and an
argument that brings the necessity for change, the desire for change and the capability to
change. The following elements are of significant to the organization for an effective cost
reduction initiative program to be a success which are : team work ,identifying and ranking
of current costs ,evaluating the importance of each cost item ,monitoring and
implementing action plans and the risk involved (Berk ,2010).
2.3.1Team work
Keller(2010) echoed that the key element for an effective cost reduction program is
cooperation from each and every individual within the organization. His assertion was that
cost control and cost reduction opportunities are everywhere within the organization,
henceforth, you will need full assistance from people in each and every department.
Rothberg (2012) shares the same view asserted by Keller (2010) by citing that
individualism in a cost reduction program is a dead end. His argument was that most
employees within the organization will tend to resist the initiative. Therefore team work
with other employees is of paramount importance. It is important to ensure that all team
members in the cost reduction initiative program should be dedicated ,passionate and have
the desire to embark on the program.(Keller,2010)

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However Kirli and Gumus (2011) had the opinion that for the cost reduction program
to be a successes ,there is need for support from top management .Their argument was
that as long as there is full inclusion of top management ,many employees will tend to
put effort ,focus and assistance because of the view that top management has authority
and also that it shows serious business .Hongren (2010) points out that despite the
inclusion of top management and other employees, communication between the two
functions is a great medicine. According to the author , team work will not be a success
if there is poor flow of communication.
2.3.2 Identify and rank current costs
The notion passed by Keller (2010) that team work is a key element in cost reduction is
evident when the need to identify and rank cost arises. Berk (2010) assert that the
process of identifying and ranking of current costs requires the support of team members
since they will help each other to gather data from all targeted areas of cost reduction.
The scholar then points out that ,it is easy to classify costs as large and small .His
argument was that ,the classification will indicate that large costs have high opportunities
for cost reduction whilst small costs will indicate that they have the opportunity to
reduce costs but at slower rate as compared to large costs.
Osadi and Okpako (2010) cite that the identification and ranking of cost should be done
through overhead categories and also by comparing department by department for the
whole organization. This type of identification usually works well for a manufacturing
firm .Nevertheless ,regardless of the method used to identify and rank costs ,Bragg (2010)
assert that the largest group or overhead category of cost should be targeted first since

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these pose a threat to the cost structure. The scholar gave an example of materials in a
manufacturing firm by citing that if this category of overhead cost is large then the team
should start to focus on that cost and brainstorm on how to reduce the cost without
affecting the cost structure or operational structure of the organization. However Ludy
(2010) and Hongren (2010) argue that there should be strict and careful identification and
ranking of costs since a wrong choice of costs may hinder the cost structure of the
organization.
2.3.3 Evaluate the importance of each cost item
Berk (2010) alludes that ,after the organization has identified and ranked its current costs,
the need to evaluate the magnitude of each cost item then arises. His notion was that, the
organization should not jump to scale down the costs soon after they have identified that
the cost item is affecting the performance of the organization rather they should assess
their importance to the organization. Therefore ,Siyanbola (2013) then points out that ,the
best way to evaluate the importance of each cost item is done on a department by
department bases .The scholar asserted that this method is effective since each
department understands the necessity of their costs and how best can the reduction of
the cost item be done.
Berk (2010) supports the view asserted by Siyanbola (2013) but further went on to cite
that the departments should classify each cost item by inserting them into three priority
levels which are high ,medium and low. The scholar pointed out that the organization
should put a close eye on the middle and low cost items although high priority cost
item indicates that the cost item is important to the operations of the organization ,the

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cost item should be monitored to avoid unnecessary increase of expenditure towards the
cost item .Thus ,high priority level should not be eliminated rather they indicate that
further analysis is required .
However Pittmen and Hawk (2013)) and Shah and Malik(2011) argue that the weakness of
this stage is that ,other departments might indicate that their cost is important of which
on the ground it’s not important. The scholars gave examples of costs like travel
expenses which are at risk of being misused by company personnel at the expense of
the organization.
2.3.4 Monitoring and implementing action plan
Monitoring and implementing the action plan of cost reduction is a critical area where
there is high probability of facing resistance from other employees(Keller ,2010).
Nevertheless Hongren (2010) and McConnick(2010) suggest that in order for the action
plans to be successfully implemented ,there is need to educate employees on why the
chosen cost is being reduced. The scholars argument was that ,once the employees are
given an explanation for the need to scale down the cost ,then cost reduction action plan
will be a success. Keller (2010) gave an opinion that there should be a person chosen
from each department who will lead the selected action plan for the purposes of
monitoring the implementation stage of the plan.
The scholar went on to cited that all action plans should be documented and that the
person chosen should give feedback to the management as to highlight the progress of
the action plan. Berk (2010) points out that the responsibility to implement and monitor
the action plan should not be done by an individual or the cost reduction team rather

19
these two groups of people are only enzymes who are there to facilitate the action plans
hence everyone within the organization should be fully involved in the program.
2.3.5 Risk involved
The management must bear in mind that cost reduction is a difficult and a high risk area
that when carried out haphazardly ,it can potentially affect the organizations goals and
objectivity(Rothberg ,2012).Henceforth, once the organization determines that cost reduction
is inevitable ,care should be considered to the approach and as well as the design of the
cost reduction methods(Berk ,2010).The scholar further cited that ,with regard to
approach ,sentiments like let’s do something now should be avoided since they act as a
cohesive way of doing things. On the other hand ,when it comes to the design ,an
overload of initiatives underway should be avoided as this poses a risk of failure.
However ,Osadi and Okpako (2010) point out that the organization should consider
checking were the concept of cost reduction has been done by other companies and if it
is the case that the concept was carried out then ,the risk will be low. In the same vein ,
the scholar then cite that if the concept was not done then the risk factor becomes high.
Henceforth ,the organization should carefully determine all possible areas of risk and take
initiatives to control these risks.
2.4 Methods of reducing costs and improve profits.
According to Rothberg (2012) , he alludes that , with the harsh global economic
environment , stiff competition and consequently declining profit margins and revenues for
many companies ,the first response of management is to cut costs to keep their
businesses afloat. In this regard ,many companies streamline their operations ,tighten their

20
procedures and learned how to do more with less thereby creating leaner and more
efficient organizations. On top of that , Siyanbola and Raji (2013) support the view of
Rothberg (2012) by citing that cost control is of paramount significance to the business
world and that ignorance of which will detrimentally affect the resultant reported
profits of any organization.
However , Ndife (2014) states that , the reasons behind cost reduction is that it leads to
more efficient use of raw materials ,maximization of profits ,successful operation and
growth of businesses entity and efficiency in overall or general performance of the
business. Rothberg (2012) then asserted that , unfortunately same companies implement
cost cutting initiatives haphazardly that do not take into account potentially damaging
long-term impacts .To this end ,undisciplined ,across the board cost cutting can severely
damage a company’s foundation and undercut its strategic advantages ,limiting its ability
to take advantage of new opportunities to add market share and boost profits during an
economic rebound. Budgeting ,Activity Based Costing, Benchmarking, Work study and
Target Costing are some of the methods for cost control and cost reduction.
2.4.1Budgeting
According to Hongren (2010) a budget is a tool that aids managers in both planning and
control functions. Nevertheless, it is not the budget that can reach the objective of cost
control and reduction rather it is the behavior of the manager. Siyanbola and Raji (2013)
assert that a budget sets the standard to indicate the level of activity from each
responsible persons and decision unit and the amount of resources that a responsible
party should use in achieving that level of activity .Therefore a budget establishes the

21
responsibility center ,delegates the concomitant responsibility and determines the decision
points within an organization.
Hongren (2010) further asserts that ,if the actual figures are different from the budget
then thorough analysis needs to be made of the causes, thus ,if the differences are caused
due to negligence or any other negative behavior , corrective action need to be taken
thereby controlling costs and consequently reducing them to an acceptable level. However
Adeninji (2011) argues that the use a budget to control and reduce costs may be biased
due to the fact that the variances discovered by the budget are just as frequently as due
to changing circumstances and poor forecasting of the management. Olabisi et al (2012)
also cited that budgets are prepared using the existing organizational structures which
may be inappropriate for the current condition. The scholar further pointed out that the
focus on the budget may also hinder the organization to be flexible as it will be clued
around the budget thereby failing to adapt to changes in business environment.
2.4.2Activity Based Costing
An ABC system is a system that first accumulates overhead costs for each of the
activities of the area being costed and then assign the costs to activities , products ,
services or other objects that require that activity( Hongren , 2010).He further says that
ABM uses the output of ABC to aid and improve operational control of an organization.
To this end both ABC and ABM are important cost control methods .The major concept
behind ABC is that it traces all direct costs to products and services and also the other
concept is that its links all indirect costs to products and services through cost drivers
and cost activities (Bragg , 2010).

22
According to Hongren (2010) and Alizera (2011),the cite that the most important aspect
of ABC and ABM is that they separate value adding activities from non-value adding
activities thereby eliminating unnecessary incurrence of costs towards the production of
the product. The scholars cited examples of non-adding value activities such as
transferring of incomplete products from one side of the plant and the other and also the
handling of stock. Their argument was that ,these activities can be easily be eliminated
by for example changing plant layout since these activities are not adding any value to
the customer .To this end it then enables the organization to control costs and reduce
unnecessary expenditure simultaneously.
Bragg (2010) then points the fact that if ABC and ABM are used simultaneously , these
concepts help the organization to understand product costing , profitability from
customers ,the costs incurred by organization processes and eventually how to bring new
methods of undertaking theses process. To this end ,when the organization manages to
improve the process then it would have achieved the idea of cost reduction. The
concepts of ABC and AMB provide the organization with accurate information ,therefore
this information can be used by management for making the three most important
decisions which are tactical ,strategic and operational decision making. In this regard both
ABC and ABM are important tools for cost control and cost reduction (Dandango ,2014).
However Oluwagbemiga et al(2014) and Bastl (2010) both argue that the problem of
ABC is in the implementation phase which is complex and requires proper identification
of activities and cost drivers .Adeninji(2011) support this view by citing that there is need
to guard against the notion that a selected cost driver provides a comprehensive basis
for controlling costs. Henceforth ,organizations should be careful when using the concept

23
of ABC in controlling and reducing costs. Dandango et al (2014) further went on cite
that the other problem with ABC is that the concept is un able to distinguish between
value adding activities and non-value activities. Henceforth management should bear care
when using this concept.
2.3.3Benchmarking
According to Barbole et al (2013) bench marking is the process of taking a comparison
or reference of your organizations activities against those of competitors in the industry.
The scholars asserted that usually the organization makes a comparison with the best
company in the industry to ensure that their operating activities are in conformity with
its major competitor. Ljubo et al (2011) then asserts that bench marking is a process of
identifying ,adapting and understanding best practice with those of the superior along
cost effectiveness. He further pointed out that the major thrust of bench marking is to
borrow ideas and the way of doing business and then later on adapting those strategies
for the purpose of gaining competitive advantage.
Murad (2014) cited that bench marking can be done in four ways which are internal
bench marking ,competitive bench marking ,noncompetitive bench marking and world class
bench marking. Nevertheless, Hongren (2010) points out that of the four ways of bench
marking ,internal bench marking was the simplest of them all because it simply
comparers the internal operations of the organization for example , carrying out a survey
of a branch to branch cost comparison or division to division comparison which
undertake similar activities.

24
Therefore by so doing this helps management to raise an alarm if the other branch is
managing to operate using low costs whilst the other is operating with high costs. He
also highlighted that the difference between competitive and noncompetitive benchmarking
was that noncompetitive involves bringing new methods of operation which can be
adapted within the organization without any comparison whilst competitive benchmarking
involves direct comparison with the competitors and then adapt those strategies into the
organizations processes. Hongren (2010) and Olabisi et al (2012) then concluded that
bench marking enables an organization to set targets and its operating activities based on
an outside and reality information which makes the organization to operate within set
standards in the industry.
However Mohamed(2013) argued that ,it is difficult to benchmark all processes within the
organization henceforth not all areas benefit from benchmark. Soni and Kodali(2010) also
argued that benchmarking organizations might find it difficult to gather full information
from their competitors would not be willing to disclose their operations and that this
technique is an ongoing process which takes time to control costs and not an immediate
solution to the organization.
2.4.4Target costing
According to Barbole (2013) and Sani and Allahverdizadeh(2012) target costing refers to
the design of the product and the processes used to produce that product so that at the
end , the product can be produced at a cost that will enable the organization to enjoy
profits when the product is sold at a market estimated driven price. To this end , Alireza
and Mahdi (2012) then asserted that target costing has three stages before the product is

25
assigned a price. According to the scholars the first phase of target costing is to analyze
the market for the purposes of establishing the characteristics which the product must
possess and its highest selling price expected by the market. However this does not mean
that the organization will simply provide the product as required by the market rather
the organization has the knowledge required to produce the product. At this stage ,the
organization will usually involve supplier and customer relations in order to provide the
product at a reasonable price at a cost effective manner.
Barbole (2013) then goes on to highlight the second phase of target pricing by citing
that the organization will have to identify what activities the organization must embark
on in order to produce the product .Therefore .these activities are then casted and the
total cost is compared to what the market perceives as a reasonable price after
deducting its desired profit. In the event, Shah and Malik (2011) point out that the
allowable costs exceed the predicted costs , then the organization embarks on identifying
where costs can be reduced without scaling down the desired product attributes unless
the other attribute does not add value to the customer . To this end , the organization
would have managed to control its costs and consequently reducing its production costs.
However Sokefun and Oginni (2012) and Zengin and Ada (2010) argue that the major
thrust of target costing is to reduce costs through product design ,henceforth, the scholars
cites that this notion might hinder the product attributes as the organization will put
more emphasis on the reduction in the design of the product. Thus other attributes of the
product might be considered as unnecessary with the motive of reducing costs as a result
customers might not be no longer satisfied by the product as it has been altered. Bastl et

26
al(2010) had of the opinion that the problem with target costing is that it ignores the
elements of fixed costs as well as administrative costs in its calculation of product costs.
From the above literature on methods of cost control and reduction strategies, it can be
concluded that their major focus and thrust was on the manufacturing sector point view
of which ,this is not the only sector in existence in the business world rather there are
other sectors in operation like the retail sector which also need to control and minimize
their operating patterns.
2.5 Summary
The purpose of this chapter was to highlight what other scholars wrote concerning the
impact of rising operational costs on an organizations performance and consequently
reducing these costs. This was achieved by trying to follow research objectives as
outlined chapter

27
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 INTRODUCTION
The reason of research methodology is to highlight the information pertaining to the
procedures employed in conducting the research .Hence forth ,it is of significance to
outline the sources and techniques used to gather and analyze data and also the reason
for their adoption. The chapter uncovered the following, research design ,population ,sample
size, data sources, research instruments ,validity and reliability, data analysis and
presentation. It then concluded with a summary at the end of the chapter.
3.1 Research design
Thyer (2010) assert that a research design is a significant tool or element of any research
process at which research design aims at outlining the plan in which the research is
going to be carried out. To this end ,it is important for the researcher to specify the type
of research design to be employed. Despite the various types of research designs, the
researcher chose to adopt descriptive research design.
3.1.1Descriptive research design (survey method)
The researcher chose to adopt descriptive research design since its purpose is to gather
data of conditions prevailing currently as alluded by Penwarden (2014) in his article
Descriptive research design :Defining your respondents and drawing conclusions. Further
,the researcher also adopted this design method as it enabled him to use both
quantitative and qualitative data in gathering information about the population being
studied. On the other hand the researcher adopted this design as it is more conclusive in

28
nature hence can be used for statistical inference on a target population through data
analysis(Selman ,2014).In the same vein, this design approach also helped the researcher
to place reliance on a variety of data .The researcher adopted the survey method as it
allowed him to use both interview and questionnaires thereby enabling him to describe
the responses given by respondents as pointed by Hale(2011)
3.2Population
Relethford (2013) postulate that a population is the totality of all features or cases under
investigation in a study . In other words, population is set of individuals at which the
researcher aims at gathering or making inferences. He also further asserts that
population for research purposes is the group of people which the researcher aims at
collecting information from them. In this regard, the researchers target population is
Executive management, Middle management, Finance and Accounts clerks, Branch Heads
and Branch sales representatives. The target population of the researcher is mainly on
Colouresell Furnitures Heard Office and part of its Branches (Kadoma).To this end the
researcher chose to use a target population of 48 respondents.
3.3 Sampling and Sample size.
Hayes(2011) asserts that a sample is a representation of a particular target population.
Thus, a sample is taken from the target population henceforth, the two are not the same.
He further points out that, a sample which is a selection from the target population is
used by the researcher as bases of information. These scholar assert that, in order to get
accurate information and data from that sample selected ,the researcher should attain a

29
sample size which is greater than 30 . The researcher chose to adopt a sample size of 45
which 83% of the targeted population in order to attain accurate results.
3.4 Sampling Technique
Thyre(2010) points out that any researcher should choose a sampling method that will
produce reasonable results and also that gives the researcher value for the information
gathered. The researcher opted for probabilistic sampling method that creates a room for making
inferential statistics. The researcher adopted stratified random sampling since this method
reduces biasness and that it eliminates focusing on a single group of the population due
to it’s across the board distribution(allocative efficiency)(Amough et al ,2013).Stratified
random sampling applies in a situation where by the strata’s themselves are heterogeneous but
the elements in each strata are homogeneous. Further ,the researcher chose stratified random
sampling since this method enables the use of applying statistical models like regression
analysis since it is based on randomness(Amogh et al ,2013)
Table 3.1 Sample size
Category of respondents Target
population
Sample
values
Sample
Percentage
Executive management 6 5 83%
Middle management 13 11 83%
Finance and Accounts clerks 18 15 83%
Branch Heads 3 3 83%
Branch sales representative 8 7 83%
Total 48 40 83%

30
3.5 Data sources
There are basically two types of data sources of information which are primary data
sources and secondary data sources as postulated by Amogh et al 2013 in his article Data
Collection -Primary and Secondary data sources.
3.5.1Primary data sources
Donald and Pamela(2010) defines a primary data sources as a method of collecting data
by the researcher himself for the purposes of the research. In other words, primary data
source of information is method of collecting data which never was gathered before for
any particular study. Henceforth, this source of data emphasizes originality. The researcher
chose to use primary data as a method of collecting data as it allowed him to collect
data which is specific to the research under study(Jenniferc ,2014).Further ,this source of
data enabled the researcher to use information which was un altered by human beings
thereby ensuring originality of data. The researcher used questionnaires and structured
interviews to collect as primary data sources.
3.5.2 Secondary data sources
Kumar (2013) points out that secondary data source of information is information which
is collected from existing records which were previously used for other purposes.
Secondary data source include financial statements reports, newspaper, articles , journals ,
books .Thus secondary data maybe derived from both internal information and external
information concerning the organization or topic under study. In this research, Coloursell
Furnitures meeting minutes, financial statements and newspaper articles , journals and
other documentaries concerning the furniture retail industry were used.

31
Secondary data sources helped the researcher to gather data in a timely manner and also
in a less costly manner(Enga14 finish institution research paper ,2013). This was because
the information so required by the researcher was readily available. The other reason why
the researcher chose to use secondary data source was to bring out information which
other people discovered concerning the research under study(Amogh,2013). Further , for the
purposes of assessing relationships of variables(regression analysis),the researcher used
secondary data.
3.6 Research Instruments
For the purposes of this study, the researcher adopted the use of interviews and
questionnaire to collect data which is relevant to the study.
3.6.1 Interviews
Thyre(2010) points out that an interview involves both oral and written presentation of
information and responses. Thus it is a session in which a series of questions are asked
in order to inquire about specific information from a person. According to the scholar, in
descriptive research design, communication with respondents is essential. The researcher
used this method in order to reinforce the questionnaires used. Due to top managements
unavailability and their strict schedules, the researcher adopted interviews mainly for the
top management. However interviews with other employees and respondents were also
conducted. Furthermore ,due to the flexibility of this instrument for example telephone
interviews were made possible to conduct (Ludy,2012) .In line with that ,the researcher
also chose to use this instrument because of its instant feedback of information . The
instrument also enabled the researcher to acquire in-depth information since the researcher

32
was able to further ask questions in order to get a clear understanding. Interviews also
enabled the researcher to assess the level of knowledge the respondent have, capture
verbal and nonverbal expressions as alluded by Susan (2014) in his article Advantages
and Disadvantages of Face to Face Data Collection.
3.6.2 Questionnaires
Kumar(2011) postulates that questionnaires are tools through which people are asked to
respond to a set of questions in a predetermined manner. Thus questionnaires are a series
of questions to be asked to the sample selected to obtain useful information about a
given study area. The researcher adopted questionnaires since they are an inexpensive
method to collect data from a potentially large number of respondents. furthermore, the
use of questionnaires enables respondents to have enough time to give a well thought at
answering the questions and that it could be used on a scattered sample size as echoed
by Long street et al (2012).Questionnaires should make use of both open ended questions
and closed ended questions. The use of closed questions were essential as they enabled
the respondents to have a guideline without wasting much of the time as postulated by
Kumar (2011).
3.7 Validity
Validity is the degree to which an instrument of research measures what is supposed to
measure(Donald and Pamela,2010).Thus an effective instrument needs to measure what it
intends to focus on in order to attain its objectives .The questionnaires were matched to the
interview questions and carefully worded.

33
3.8 Reliability
Reliability refers to the ability to obtain consistent results when the research instrument
chosen are reused(Janet ,2011). Some of the factors that determine reliability are sample
size, instruments used for data gathering and level of understanding of the respondents.
Attention was be given to question construction ,wording, choice of sample and testing
the instrument through the usage of statistical models.
3.9 Regression model(multiple regression model)
The researcher adopted to employ multiple regression analysis in order to test the
relationship which exists between rising of operating costs and profitability as alluded by
Richa (2014) in his article “ Regression Analysis :find the best fit for your statistical
model”. The researcher seeks to find the effect which exist between one variable and
another in this study for example ,what happens to profitability when there is a change
in operating costs. The dependent variable will be the (profit) whilst the independent
variables will be (administration costs, telephone charges, fuel costs and repairs and
maintenance).
The following equation was used:
Y = β0 + β1X1+β2X2+β3X3+ +e
Where :
Y is profit
β0 is constant term

34
β1 - β 4 are regression coefficients
X1 is telephone cost
X2 is repairs and maintenance
X3 is fuel costs
3.10 Data Analysis
The researcher used primary data and secondary data to analyze data. The Statistical
Package for Social Sciences(SPSS version 16) was used to correlate the relationship
between cost reduction of operating costs and the organizations performance from
financial statements of 2011-2014.The researcher chose this software package as it
enabled him to effectively manage data thereby analyzing it in an efficient manner as
alluded by Verma (2013) in his book titled Data Analysis in Management with SPSS
software.
3.11 Data Presentation
The data collected was presented in the form of tables, graphs and charts. The researcher
employed inferential statistics method that is correlation to quantity and analyze raw
data that allows for generalization and reasonable deductions for the research study to be
made based on the findings of the research. The researcher used the SPSS software
package to present data .This was because the package offers a wide range of options to
present data and also it offers better organization of output as postulated by Stumm
(2011) and Harri (2012).

35
3.12 Chapter summary
The chapter uncovered the research methodology ,research design ,population ,sample size
,research instruments ,data collection sources ,multiple regression model and data
presentation and analysis. The following chapter now unveils the analysis of research
findings.

36
CHAPTER : FOUR
DATA PRESENTATION AND ANALYSIS
4.0 INTRODUCTION
This chapter presented and analyzed data gathered through the use of questionnaires and
interviews . Statistical analysis was used to test the relationship which exits between
operating costs and profitability .The data gathered was presented in the form of tables
,charts and graphs . A full description of the data gathered now follows .
4.1 Survey Response Rate
Table : 4.1 Respondents from Questionnaires and Interviews
The researcher issued out thirty five (35) questionnaires and conducted five (5)
interviews. Of the 35 questionnaires , the researcher got a response of 34 questionnaires
whilst of the intended interviews , he managed to conduct all the 5 interviews .This
RESPONSE RATE FROM QUESTIONNAIRES AND INTERVIEWS CONDUCTED
Category of respondents Sample size Response from sample size Response Rate
Executive Management 5 5 100%
Middle Management 11 11 100%
Finance and Accounts Clerk 15 13 87%
Branch Heads 3 3 100%
Branch Sales Represantative 7 7 100%
Totals 40 39 98%

37
implies that ,the researcher managed to acquire a response rate of 98% from the survey
conducted .In this regard , this it is in support of what was cited by Wardle (2011) in
his article “What is an average survey response rate ” ? that a positive survey response
rate should be between 50% and 70% of the respondents .Therefore ,based on that
notion , the researcher managed to acquire a survey response rate which is well above
the anticipated rate thereby enabling him to gather data from required sample size .The
non-response rate of 2% was insignificant to disrupt the researcher to make reasonable
analysis and conclusions from the gathered data.
4.1.1 Gender Response
Figure 4.1 Gender
With the increase of gender awerenes in Zimbabwe ,the researcher sort to gather data
from a balanced gender population .According to the chart above ,it was evident that the
researcher managed to acquire information from almost a balanced sex.This is indicated
FEMALE
47%MALE
53%
GENDER

38
by a 53%(18/34) and 47%(16/34) from male and females respectively although there
was a slight difference.Nevertheless the objective was met to gather data from an even
population.
4.2 Level of Experience with Colouresell
Figure 4.2 Period of employment
According to the chart , it shows that 44%(15/34) have been with the entity for more
than 6years and above whilst 32% (11/34) have been with the entity between 3years-
5years and the 24% (8/34) have less than 2 years with the organization .Therefore , the
majority of the respondents 76%(44%+32%) have very strong relationship to CF thereby
ensuring that they possess enough and reasonable knowledge about the information
required by the researcher to make a reliable and valid research
24%
44%
32%
PERIOD OF EMPLOYMENT
Less than 2yrs
3yrs -5yrs
6yrs and above

39
4.3 Which Department Do you Fall in ?
Figure 4.3 Department
According to the bar graph above , it is evident that 27 (13+11+3) respondents possess
reasonable knowledge as the majority 13 came from fiancé and accounts clerk whilst the
other half came from middle management . This enabled the researcher to obtain
information which is valid and reliable.
13
3
7
11
0
2
4
6
8
10
12
14
Finance &
Accounts clerk
Branch Heads Branch Sales
Representitive
Middle
Management
Department
Department

40
4.4 Is Coloursell Furnitures experiencing rising operational costs ?
Figure 4.4 Experiencing rising costs
From the above bar graph ,it is evident that CF is experiencing rising operational costs
in its trading operations. This is depicted by 79%((27/34) of the respondents who
strongly agreed that in deed the organization is experiencing rising costs. This response
is in line with what the CEO of TN Heliquen ,Mr. T Nyambirayi when he indicated
that the furniture retail industry is facing escalating operational costs whilst 18% of the
respondents also agree that the organization is having a challenge with its operation
costs. However 3% (1/34) of the respondents have the view that they are not sure
whether the organization is experiencing rising operational costs or not and also 0%(0/34)
cited that the company is not experiencing any rising operational costs. Therefore ,it can
be concluded that CF is actually facing rising operation costs. The percentage 3% and
0% are an insignificant number to oppose this conclusion.
Strongly
Agree
Agree
Uncertai
n
Disagree
Experiencing rising costs 79% 18% 3% 0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
%ofrespondents
Experiencing rising costs

41
4.5 Challenges Faced by the retail industry
Figure 4.5 Challenges faced by the retail industry
According to the bar graph above , it is clear that with competition 12 strongly agree ,
13 agree , 4 were uncertain , 2 disagree whilst 3 strongly disagree . The 25 (12+13)
respondents who are in support of competition as a challenge are in line with E-
commerce (2011) position that competition is a challenge in the industry .This is also
evidenced by a small number which disregards competition as a challenge .Inefficient
supply chain was supported by 3 who strongly agree whilst 16 agree .Nevertheless 6
respondents were uncertain were as 0 respondents disagree whilst 9 strongly disagree .
The 0 and 9 respondents who disagree are in line with what was cited by Berry (2011)
who cited that organizations who want to be valued as the best in the industry would be
0
2
4
6
8
10
12
14
16
18
Strongly Agree
Agree
Uncertain
Disagree
Strongly Disagree

42
put much emphasis on being time conscious as this problem depends with the
organizations way of doing business. The respondents who admitted that inefficient
supply chain is a challenge were in line with Tammela and Canen (2010).
Changing customer behavior recorded the highest response as 17 strongly agree and 9
agree were as 3 were uncertain and 2 disagree whilst 3 strongly disagree . The
summation 26(17+9) are positive that changing customer behavior is a challenge are in
support of Raham (2014) who cited that the retail industry is having a crisis with ever
changing customer preference and buying power whilst 5 (2+3) respondents are aligning
to what Uddin (2012) echoed that it’s not customers who have the problem but rather it
is the retail sector which lacks research on customer preference and perceptions .
However the bar graph above clearly indicates that 14 respondents were uncertain as to
whether advertising is a challenge or not whilst 6 disagree and 11 strongly disagree .
This in line with Randall and David (2011) position that organizations do not have
control over advertising as this dependents on what the customer perceives the
organization . Nevertheless 3 respondents supported that advertising is a challenge in the
industry although they are a small portion of the population .
High rentals had 9 respondents who strongly agree with it as a challenge in the retail
sector were 16 agree while 5 respondents are uncertain and 1 and 3 respondents both
disagree and strongly disagree respectively . The summation of 25 (16+9) respondents
enabled the author to conclude that high rentals are indeed a challenge which is existing
in the retail sector whilst 4 (1+3) who oppose this conclusion are insignificant number to
disrupt this assertion . Reliance on imports registered 16 respondents who strongly agree
were 15 agree to it as a challenge were 3 were neutral 0 disagree whilst 0 again

43
strongly disagree . According to these figures , it is evident that reliance on imports is a
challenge as 31(16+15) respondents echoed that it is a challenge and also to prove that
it is a challenge no respondent strongly disagree nor disagree to this . Therefore , in
conclusion about the challenges affecting retail industry , the author concludes that ,
reliance on imports is the highest challenge followed by changing customer behavior
followed by high rentals and competition and then inefficient supply chain while
advertising registered the lowest acceptance but more respondents disagreed to it as a
challenge .
4.6 Effects of rising operational costs on the performance of Coloursell
Figure 4.6. Comparison of impacts to performance
0
2
4
6
8
10
12
14
16
18
20
Strongly Agree Agree Uncertain Disagree Strongly
Disagree
Comparison of impacts to perfomance
Reduced Cash Flow Declining Revenues Failure to expand operations Reduced profits

44
The researcher sort to determine as to which impact of rising operational costs greatly
affects the performance of the organization. To this end ,the above bar graph depicts the
comparison of each impact against each other. According to the bar graph ,the researcher
ascertained that profits are greatly affected by rising operational costs since 20 strongly
agree whilst 12 agree as also alluded by Bragg (2010). This is also supported by the fact
that all respondents were certain about their decisions as no respondent cited that he or
she was not certain about the fact that rising operational costs affect reported profits. The
2 respondents who cited that they strongly disagree about this assertion are an outlier as
they don’t disrupt the author to conclude that rising costs greatly affect profitability .
Further analysis reviewed that the second element affected by rising operational costs
was the cash flow base of the organization as 17 of the respondents were of the opinion
that cash flow of the entity is affected by rising operational costs as more funds will be
channeled towards financing these activities. This is also supported by 13 of the
respondents who agree that cash flow of entity is diluted by the increase in operational
costs. However a small number of 1 respondent was uncertain were 1 disagree whilst 2
strongly disagree with the view that cash flow is not affected by the increase of
operational costs.
The third element affected after profits and cash flow is revenue base of the entity. This
is depicted by 14 respondents who strongly agree whilst 15 agree. However 2 of the
respondents share the view that they are uncertain as to whether revenue of the
organization is reduced by an increase in operational costs. In spite of that 3 of the
respondents have the opinion that they disagree to the fact that rising operational costs
have any bearing on the revenue base of the organization. Based on these percentages

45
.it can be cited that revenue base of the entity is also affected by the increase in
operational costs as evidenced by 29 (14+15) respondents who are in support of this
assertion . This was also highlighted by Siyanbola and Raji (2013 ) that the greatest
impact of rising cost of revenue is felt through the pricing of the product as the entity
will try to recover its expenditure by charging high prices which detrimentally reduce
revenue figure.
The fourth and last element affected by the increase in operational costs is growth of
the organization. As shown by the graph above , it is clear that all respondents have
something to say about the growth of the entity. A close look indicates that 3 strongly
agree whilst 12 agree. Nevertheless 8 were uncertain whilst 3 strongly disagree and 8
disagree .These figures mean that ,growth of the entity is to a lesser extent affected by
the increase in operational costs as the organization might incur high costs whilst
expanding its operations. Those who agree are in line with what Shah and Malik (2011)
who posited that an organization experiencing rising costs will to a greater extent fail to
expand whilst those who argue about rising costs not affecting growth were in support
of Hongren (2010). Therefore to conclude that rising operational costs directly affect
growth of the entity is un justifiable as 19 (8+8+3) are in disagreement with this
assertion . However, it can be concluded that growth of the entity is to lesser extent
affected by rising costs as 15 (12+3) respondents were with the view that rising
operational cost affect growth .
In conclusion of the above comparison shown by the graph , the researcher came to
reach a point where he cited that profits are greatly affected by rising operational costs

46
followed by cash flow base then revenue figure and then lastly growth of the
organization .
4.7 Is cost control and cost reduction a necessity ?
Figure 4.7 Cost control and reduction a necessity or not
According to the pie chart above , it shows how Colouresell does not prioritizes cost
control and cost reduction in its trading activities. With the data presented above ,it is
clear that the majority of the respondents share the opinion that the organization is not
taking cost control and cost reduction a necessity. This is evidenced by 59%(20/34) of
the respondents who cited that the organization is not taking cost control and reduction a
priority. However 41%(12/34) of the respondents argue that the organization is prioritizing
cost control and cost reduction thereby aligning to what was postulated by Rustito (2014)
who cited that the survival of any business is based on maximizing profits whilst
minimizing costs. Therefore the researcher concluded that Colouresell Furnitures should
Yes, 41%
No, 59%

47
start to consider planning a cost reduction and control exercise since the organization is
facing rising operational costs but they are not prioritizing its impacts to the
performance of the organization.
4.8 Factors to Consider in initiating a cost reduction program
Figure 4.8 Factors in a cost reduction program
According to the graph above 16 respondents strongly agree that team work should be
included in a cost reduction program whilst 9 respondents agree to this notion . This was
also highlighted by Keller (2010) who cited that the key element in a cost reduction
program is cooperation from each and every employee .However other 9 respondents
were of the opinion that they disagree to the inclusion of team work in a cost reduction
program . Their opinion is in line with Kirli and Gumus (2011) view point that the most
important element is communication and support from top management . In spite of that
no respondent indicated that they are uncertain about the inclusion of this factor .
0
5
10
15
20
25
Risk Factors Involved
Team work
Identify and rank current
costs
Evaluating the importance of
each cost item
Monitoring and
implementing action plans

48
Identification and ranking of current costs registered 21 respondents who strongly agree
whilst 12 agree .This was also cited by Berk (2010) that identification of current costs
will help an organization to focus on specific costs which are affecting the organization
without disrupting its cost structure . A single respondent was uncertain as to whether
identification of current costs is important or not but this number is insignificant to
disrupt the conclusion made .
The greatest number under evaluating the importance of each cost item was 10 which
they disagree to the inclusion of this factor while 2 respondents were uncertain . This
was also cited by Pittman and Hawk (2013) who indicated that the evaluation of each
cost item might be biased as other departments in the organization will tend to cite that
their costs are important whilst they are not . However 7 respondents strongly agree and
7 agree that evaluating the importance of each cost item is necessary to be considered
in a cost reduction program . This is in support of what Siyanbola and Raji (2013)
citation that this factor enables the organization to be able to eliminate or scale down
unnecessary costs which do not directly affect the operation of the organization .
Monitoring and implementing action plans was supported by 30 (16+14) respondents
who strongly and agree respectively while 0 were uncertain and 4 disagree and then 0
strongly disagree . Those who are in favor of including this factor share the same view
of McConnik(2013) who cited that for an effective cost reduction plan there is need for
supervision of employees and educating them why the chosen cost item is being
reduced . However the 4 respondents who disagree are in support of Keller (2010) who
indicated that employees will tend to resist to implement procedures designed to scale
down expenditure .

49
The last factor to be taken into consideration was risk factors involved of which 16
respondents agree while 0 strongly agree were as 7 were uncertain and 4 disagree and
then 7 strongly disagree . The 16 respondents who agreed are in support of Rothberg
(2012) citation that the management should bear in mind that cost reduction is a high
risk area which when executed haphazardly can potentially affect the organization goals
and objectives . Nevertheless 11(4+7) respondents who disagreed share the view point
which was also highlighted by Osadi and Okpako (2010) .
In conclusion the researcher discovered that identification and ranking of current costs
received the highest consideration of 33 respondents followed by monitoring and
implementing action plans with 30 respondents and then team work with 25 respondents
followed by risk factors with 16 respondents and then the lowest consideration came to
evaluating the importance of each cost item which was supported by 14 and disagreed
by 18 respondents .

50
4.9 Methods to Control and Reduce costs
Figure 4.9 Comparison of the methods
The researcher used the bar graph above to determine which method is best appreciated
by respondents as an effective method of cost control and reduction .With the evidence
above , the researcher discovered that budgeting was highly considered as the most
effective method since all respondents (19+15) strongly agree and agree that its effective
and that no respondent indicated that they strongly disagree ,disagree nor were uncertain
about the use of the method as also alluded by Hongren (2010) that this is a simple
way of controlling expenditure using internal information . The second appreciated method
was target costing as 27 ( 15+ 12/) of the respondents were in support of the use of the
method. This in line with what Allahverdizadeh (2012) who indicated that this method
enables the organization to recover full costs as the product will be sold at a price
which in cooperates all costs .This is also supported by the fact that no respondents
0
2
4
6
8
10
12
14
16
18
20
Strongly Agree Agree Uncertain Disagree Strongly
Disagree
Comparison of the Methods
Target Costing Work Study Benchmarking Activity Based Costing Budgeting

51
strongly disagreed nor were uncertain about the applicability of the method although 7
of the respondents disagreed that target costing is effective as also echoed by Bastle et
al (2010) who cited that this method ignores other cost elements like fixed costs and
administration costs in its calculation of product costs.
The third method considered by respondents after target costing was work study which
registered 23(7+16/) of respondent who indicated that it’s one of the effective methods to
control and reduce costs . However 11 of the respondents were uncertain about work
study but this percentage was not significant enough to pass a decision that work study
is the third method considered as no respondents strongly disagree or disagree to the
applicability of the method . The forth method appreciated was benchmarking as 21
(8+13) respondents both strongly agree and agree that its effective whilst 13 respondents
disagree .Those in favor are in conformity of what Barbole (2013) indication that
benchmarking is effective as it uses tried and tested measures applied in the industry .
However 13 respondents were in line with Soni and Kodali (2010) who cited that it is
difficult to gather data from competitors who will not be willing to disclose their
operating procedures .
The fifth and last method was activity based costing which 8 respondents strongly agree
while 11 agree were as 4 are uncertain and then 11 disagree 0 strongly disagree .A total
of 19(8+11) are in support of Alizera (2011) who cited that ABC separates non value
from value adding activities thereby eliminating unnecessary incurrence of costs
.However the 11 who disagree were in line with Adeninji (2011) and Bastle et al
(2010) who indicated that the problem of ABC is that it is complex to implement .

52
4.10 Cost reduction an effective way of minimizing operational costs
Figure 4.10 Cost reduction an effective way of minimizing costs
65% (22/34) of the respondents agree that cost reduction is an effective way of
minimizing costs as alluded by Siyanbola and Raji (2013) who cited that cost reduction
is of paramount importance significant to the business world and that the ignorance of
which will definitely affect the resultant profits of the organization . However , 35 %
(12/34) of the respondents share the view that cost reduction is not the effective way of
minimizing costs as supported by Rothberg (2012) when he cited that unfortunately
some companies implement cost cutting measures haphazardly that do not take into
account potentially damaging long-term impacts .Therefore the need to apply and
implement cost reduction measures in a strategic manner arises .
Strongly Agree
Agree
Uncertain
Strongly Disagree
Disagree
65%
35%
Cost Reduction an Effective way of
Minimizing costs

53
4.11 Other information necessary concerning this topic
4.11.1 Current Economic Challenges
The majority of the respondents indicated that the topic under study did not mention or
take into account the current economic conditions prevailing to the company. Their
arguments were that the company might be experiencing rising costs but it might not be
due to failure of the organization to reduce costs rather it might due to harsh economic
factors being experienced by the nation at large .
4.12 Interviews
The researcher managed to carry out five interviews with the executive management .The
researcher received a 100% response rate from the interviews ,henceforth ,the analysis of
data from interviews now follows .
Question 1- What major costs are reducing profits ?
According the executive management , they all acknowledged that fuel ,advertising
,telephone and repairs and maintenance are the major costs affecting profits at
Colouresell. This in support of what was cited by the Financial Accountant in his report
of 2015 that the above costs are contributing a greater percentage towards the decline of
profits at the organization .In line with that ,one of the interviewees indicated that
advertising is a major cost since the furniture retail industry sells products which are
not necessities therefore the need to extensively advertise arises .On further questioning
the responded highlighted that they advertise using the traditional methods through the
press and television . However of the five interviewees ,three of them mentioned that the

54
other costs which is detrimentally reducing their profits are handling costs of inventories.
They cited that this cost is becoming a troublesome costs which occur both at branch
level , from supplier and also upon delivery of the product to the customer .
Question 2-What methods do you think Coloursell can employ to reduce these costs
During the interview , the researcher leant that four of the respondents cited budgeting ,
benchmarking and target costing as one of the methods they can employ to reduce and
control costs . One of the respondents indicated that budgeting is easy to apply as all
information used in its execution is obtained internally although the application restricts
the entity from being flexible as it will be glued to abiding to the budget instead of
leaving room for extensions .This citation was also alluded by Olabis et al (2012) that
the budget may hinder the organization to be flexible thereby failing to adapt to changes
in the business environment .
However ,the researcher leant that the organization does not prefer the use of ABC as
one of the methods because of its complex implementation and that what assurance
does the choice of cost driver give the organization to conclude that costs will be
controlled or reduced . This position was also cited by Dandango et al (2014) and
Oluwagbemiga et al (2014 ) when they indicated that the major drawback of ABC is its
implementation phase which is complex and requires proper identification of cost drivers
and distinguishing value adding activities from non -value adding activities .
Question 3 -What challenges are you facing as Coloursell in the retail sector ?
Two of the respondents indicated ever changing customer behavior , competition and
imports . On top of that , the other three mentioned supply chain problems and failure

55
of paying amounts due by customers . The two respondents emphasized that changing
customer behavior in the retail sector is one of the most deadly problems affecting the
performance of the industry . They opined that due to the emergency of free excess to
information and that they are finding it difficult to have cash , customers are becoming
more and more sensitive and analytical to products and prices before they make final
decision to purchase the product . This assertion was posited by Schiffman and Kanuk
(2010) that the reason why consumers are changing their behavior especially in the retail
sector is due to the fact that they have perfect knowledge in all respects .
These two respondents also mentioned that competition is one challenge which is
affecting the organization .They mentioned that competition mainly affects the pricing
policy of the organization as the organization will be forced to price their products
based on what the market perceives and not what the organization perceives .Therefore
,this principle will deteriorate the reported revenue . This is in support of what E-
commerce (2011) cited that the negative impacts of competition is to force an
organization to further reduce their prices of which the retail industry naturally has the
lowest mark ups . Nevertheless , imports and failure of paying amounts due by customers
were of interest to the researcher as they came as new information .
Question 4 -Is Coloursell considering cost reduction a priority ?
According to all interviewees , they all acknowledged that they are trying to prioritize
cost reduction based on the fact that rising operational costs are now becoming a major
problem in their trading activities . They cited that of late the organization was not aware
of the huge impacts and that the rising operational costs were unveiled late last year .

56
However , they indicated that the organization is now considering cost reduction a
priority .
Question 5 -What factors do you think Colouresell should consider in starting a
cost reduction program ?
Four respondents cited team work ,identifying rising costs and monitoring and
implementing action plans . All respondents were in support of team work as a a key
element for an effective cost reduction plan program to be a success .They posited that
without team work and free communication between employees and management , the
program will be a failure .This was also heighted by Keller (2010) when he indicated
that individualism and cohesiveness in a cost reduction program is a dead end and that
this will facilitate resistance from employees . Other factors which they indicated above
were said they will be success as long as proper team work is implemented .
Question 6 -Any comment or suggestion with regard to cost control at Colouresell ?
One of the respondents indicated that it does not necessarily mean that the organization
should embark on cost control and cost cutting measures rather the organization should
also think about turn around strategies like for example changing the way the
organization operates in cooperating current economic situations . The respondent cited an
example during the period of 2008 when the nation was facing hyperinflation . During
that period , immediate decisions were needed to be taken without basing the decision
on documented procedures or policies .In line with that , the other respondent opined that
cost control is a gradual and continuous process of which the organization requires
instant or rather immediate solution to curb the rising costs .

57
Still on the same note , other respondents were of the view that yes cost control is of
paramount importance to the organization but care should always be given to the way
the entity approaches this technique in trying to circumvent rising operational costs .
They echoed that , cost control and cost reduction strategies should be implemented in
a strategic manner or rather a well thought plan which will enable the organization to
improve its performance thereby increasing its profitability .
4.13 Quantitative Analysis (regression results )
Step wise regression was used to come up with the best model that suits the data ,this is
a regression technique that stimulate variables to come up with the best model .The
variables entered and removed in the model until the best equation has been obtained.
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation Kurtosis
Statistic Statistic Statistic Statistic Statistic Statistic Std. Error
NET PROFIT 48 $150,098 $300,444 $215,441.46 $44,086.743 -1.241 .674
TELEPHONE COSTS 48 $2,019 $3,560 $2,459.77 $420.557 .555 .674
ADVERTISING
COSTS
48 $1,990 $2,912 $2,453.94 $234.941 -.347 .674
FUEL COSTS 48 $4,810 $7,893 $6,566.46 $711.490 .959 .674
REPAIR &
MAINTENANCE
COSTS
48 $1,602 $2,791 $2,309.75 $206.768 3.452 .674
Valid N (listwise) 48

58
The table shows the descriptive statistics for the variables available for analysis , the N
represents the total cases that where available per each variable .All variables were 48
months for the period 2011 -2014
The standard deviation is acceptable for all the variables since the observed values are
not deviating too much from the mean .
The kurtosis values are not great except for the last variable with 3.452 , which shows
that the variables are not departing from Normality .
Correlations
NET
PROFIT
TELEPHONE
COSTS
ADVERTISI
NG COSTS
REPAIR &
MAINTENA
NCE COSTS
FUEL
COSTS
NET
PROFIT
Pearson Correlation 1 -.609**
.205*
-.573**
-.401*
Sig. (2-tailed) .000 .035 .000 .038
N 48 48 48 48 48
TELEPHON
E COSTS
Pearson Correlation -.609**
1 -.077 .254 .350*
Sig. (2-tailed) .000 .601 .081 .015
N 48 48 48 48 48
ADVERTIS
ING COSTS
Pearson Correlation .305*
-.077 1 -.227 .062
Sig. (2-tailed) .035 .601 .121 .675
N 48 48 48 48 48

59
REPAIR &
MAINTEN
ANCE
COSTS
Pearson Correlation -.573**
.254 -.227 1 -.281
Sig. (2-tailed) .000 .081 .121 .053
N
48 48 48 48 48
FUEL
COSTS
Pearson Correlation -.301*
.350*
.062 -.281 1
Sig. (2-tailed) .038 .015 .675 .053
N 48 48 48 48 48
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
The above table shows bivariate correlations across all the variables and Pearson
Correlation method was used to access the basic relationship between these variables .The
researcher chose to use Pearson method since the kurtosis values has shown that the data
is approximately Normal .The findings showed that variables Telephone costs (-0.609)
,repairs and maintenance costs (-0.507) ,fuel costs (-0.401) have a negative correlation
which means that as these costs increase the net profit will be decreasing .The variable
advertising shows a positive correlation of 0.205 but not significantly different from zero.
Correlations between the independent variables does not make us to suspect the presents
of multi-collinearity which is a deadly disease in regression analysis which can lead us
to making incorrect inferences.
The variables telephone costs and repairs and maintenance shows a Sign value of 0.000
which shows that the results are statistically significant at the level 0.01 -99% degree of
confidence and also that the results for Advertising costs and fuel costs having a 95%
degree of confidence .

60
Variables Entered/Removed
Model
Variables
Entered
Variables
Removed Method
1 TELEPHON
E COSTS
.
Stepwise (Criteria: Probability-of-F-to-enter <= .050,
Probability-of-F-to-remove >= .100).
2 REPAIR &
MAINTENA
NCE COSTS
.
3 FUEL
COSTS
.
a. Dependent Variable: NET PROFIT
The table shows the variables that were entered in the regression model .The
variables Telephone ,repairs and maintenance and fuel costs succeeded in the model
because of having a probability of the F value less than or equal to
0.05.Advertising cost did not meet these requirements since it had a probability of
the F value greater than or equal to 0.100.Telephone costs was the first variable to
be included in the model due to its greater impact on profitability followed by
repairs and maintenance which was entered in model 2 ,and fuel costs having a
lessor impact on profitability but statistically significant .

61
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
R Square
Change F Change df1 df2
Sig. F
Change
1 .609a
.371 .357 $35,341.730 .371 27.137 1 46 .000
2 .747b
.558 .538 $29,959.146 .187 19.014 1 45 .000
3 .803c
.646 .621 $27,128.787 .088 10.880 1 44 .002
a. Predictors: (Constant), TELEPHONE COSTS
b. Predictors: (Constant), TELEPHONE COSTS, REPAIR &
MAINTENANCE COSTS
C Predictors: (Constant), TELEPHONE COSTS, REPAIR & MAINTENANCE COSTS,
FUEL COSTS
The model summary is showing us why model 3 was chosen to be the best, since it has got the
highest R Square which shows that 0,621of the variation in the dependent variable (Profit ) is
being explained by the independent variables.
The first simple linear regression model having dependent variable(Profit) and independent
variable(Telephone costs) showed a good Sig value but because of a lower R Square of 37,1%
showed that we need also to take into consideration the effect of other variables since the
omission of relevant variables can lead to the problem of Misspecification .

62
This lead to the inclusion of the variable Repairs & Maintenance cost in model 2 which lead to
a multiple regression model having explanatory variables Telephone costs and Repairs &
Maintenance. The variable Repairs & Maintenance costs was added to the model because of a
contribution of 18,7% to the R Square which made it reach a level of 55,8%.
Since the R square was now satisfactory but not that bigger ,this caused the variable Fuel to be
added in the model having a positive contribution of 8.8% to the R square making the R square
to reach 64,6%. This result shows us the proportion of variance that is being explained by the
model.
Comparing the standard error of the estimates for the 3 models we can see that we started with a
an error of
$35 341,73 and ended up at $27 128,78 which shows that the dispersion of estimates from the
mean has decreased. Which is why model 3 was considered to be the best
Coefficientsa

63
Model
Unstandardized Coefficients
Standardized
Coefficients
t Sig.B Std. Error Beta
1 (Constant) 372510.595 30579.935 12.182 .000
TELEPHONE COSTS -63.855 12.258 -.609 -5.209 .000
2 (Constant) 563316.342 50859.848 11.076 .000
TELEPHONE COSTS -51.952 10.744 -.496 -4.836 .000
REPAIR &
MAINTENANCE
COSTS
-95.285 21.852 -.447 -4.360 .000
3 (Constant) 731424.504 68692.205 10.648 .000
TELEPHONE COSTS -35.593 10.920 -.340 -3.259 .002
REPAIR &
MAINTENANCE
COSTS
-124.490 21.678 -.584 -5.743 .000
FUEL COSTS -21.456 6.505 -.346 -3.298 .002
Dependent profit
Since the Sig value for model 3 is less than 0.05, we can assume that the estimate in column
“B” can be asserted as true with a 95% level of confidence.
The model that we thought could explain profit did not come as it is since advertising
was not in the model to all findings that we have found .The model shows that as
telephone costs ,repairs and maintenance and fuel costs increa ses profit is decreasing .But
increase in advertising has shown that it decreases net profit at a lower level even
though the contribution of advertising is not statistically significant .

64
According to the findings we will have equation.
Y=β0+β1X1+βX2+β3+e
PROFIT= 731424.504-35.593TELEPHONE COSTS-124.490REPAIR AND MAINTENANCE-
21.456FUEL COSTS
Excluded variables
Model Beta In t Sig.
Partial
Correlation
Collinearity Statistics
Tolerance
1 ADVERTISING
COSTS
.259a
2.312 .025 .326 .994
FUEL COSTS -.100a
-.798 .429 -.118 .877
REPAIR &
MAINTENANCE
COSTS
-.447a
-4.360 .000 -.545 .935
2 ADVERTISING
COSTS
.174b
1.748 .087 .255 .948
FUEL COSTS -.346b
-3.298 .002 -.445 .731
3 ADVERTISING
COSTS
.177c
1.979 .054 .289 .948

65
a. Predictors in the Model: (Constant), TELEPHONE COSTS
b. Predictors in the Model: (Constant), TELEPHONE COSTS, REPAIR & MAINTENANCE COSTS
c. Predictors in the Model: (Constant), TELEPHONE COSTS, REPAIR & MAINTENANCE COSTS,
FUEL COSTS
d. Dependent Variable: NET PROFIT
The table shows why Advertising did not
make it in the model since it has got a
Sign value that is not less than 0.05.
4.14 Chapter Summary
This chapter presented and analyzed data which was converted to useful information
through the interpretation of the data. Based on chapter four , the following chapter will
focus on providing summaries ,conclusions and recommendation .

66
CHAPTER FIVE
SUMMARIES, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction
The preceding chapter presented and analyzed data collected by use of questionnaires
and interviews .To this effect , after having obtained the research findings , chapter five
will now draw summaries of each chapter , draw conclusion from findings and then later
on make recommendations which will enable Colouresell Furnitures to improve its
performance .
5.1 Chapter Summaries
5.1.1 Chapter One
This chapter uncovered the background of study and the problem statement which lead
the author to investigate on the impact of rising operational costs on Colouresell
performance . The chapter later on gave the main research question ,sub research questions
and the objectives of the study which the author intended to achieve during the
research.. The assumptions ,significance of study ,limitations and also delimitations of
study were highlighted by the author . The last aspect of the chapter was the definition
of terms which were used during the investigation .
5.1.2 Chapter Two
The major thrust of chapter two was to investigate what other scholars and authors cited
concerning the impact of rising operational costs on the performance of the entity .This
was achieved by answering the research objectives as indicated in chapter one .Scholars

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