Students can access the CBSE Sample Papers for Class 12 Business Studies with Solutions and marking scheme Set 5 will help students in understanding the difficulty level of the exam.
CBSE Sample Papers for Class 12 Business Studies Set 5 with Solutions
Time Allowed: 3 hours
Maximum Marks: 80
General Instructions:
- This question paper contains 34 questions.
- Marks are indicated against each question.
- Answers should be brief and to the point.
- Answers to the questions carrying 3 marks may be from 50 to 75 words.
- Answers to the questions carrying 4 marks may be about 150 words.
- Answers to the questions carrying 6 marks may be about 200 words.
- Attempt all parts of the questions together.
Question 1.
Vikrant joins his father’s business of organic masalas, near Kotgarh in Himachal after completing his MBA. In order to capture a major share of the market, he decided to sell the product in small attractive packages by using the latest packaging technology. His father suggested that they hire financial consultants to estimate the amount of funds that would be required for the purpose and timings when it would be required. The concept being discussed by Vikrant’s father, links which financial decision with the investment decision? [1]
(A) Dividend decision
(B) Financial planning
(C) Capital structure decision
(D) Financing decision
Answer:
(B) Financial planning
Explanation:
The financial statements are prepared keeping in mind the requirement of funds for investment in the fixed capital and working capital. Then the expected profits during the period are estimated so that an idea can be made of how much of the fund requirements can be met internally.
Question 2.
Harshita Verma has set up a factory to manufacture herbal hand sanitizers in Meerut. The size and shape of the bottles in which the products are packed are specially designed so that it should be convenient to handle and use by the consumers. The bottles in which the sanitizers are packed is a part of: [1]
(A) Primary packaging
(B) Secondary packaging
(C) Tertiary packaging
(D) Both secondary and tertiary packaging
Answer:
(A) Primary packaging
Explanation:
It refers to the product’s immediate container. In some cases, the primary package is kept till the consumer is ready to use the product (e.g., plastic packet for socks); whereas in other cases, it is kept throughout the entire life of the product (e.g., a toothpaste tube, a matchbox, etc.).
Question 3.
India has launched its most advanced Geo-imaging satellite which will allow better monitoring of the subcontinent, including its borders with neighbouring countries, by imaging the country 4-5 times a day. The satellite is capable of near real time monitoring of floods and cyclones. The factor constituting the business environment being discussed above is: [1]
(A) Social environment
(B) Economic environment
(C) Technological environment
(D) Political environment
Answer:
(C) Technological environment
Explanation:
Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
Question 4.
Which of the following statement is incorrect about Personal Selling: [1]
(A) It is a direct face-to-face dialogue that involves an interactive relationship between the seller and the buyer.
(B) It refers to short-term incentives designed to encourage the buyers to make immediate purchase of a product or service.
(C) It allows a sales-person to develop personal relationship with the prospective customers.
(D) In this it is possible to take a direct feedback from the customer and to adopt the presentation according to the needs of the prospects.
Answer:
(B) It refers to short-term incentives designed to encourage the buyers to make immediate purchase of a product or service.
Explanation:
Statement (B) talks about sales promotion. Sales promotion refers to short-term incentives which are designed to encourage the buyers to make immediate purchase of a product or service. These include all promotional efforts other than advertising, personal selling and publicity, used by a company to boost its sales. Sales promotion activities include offering cash discounts, sales contests, free gift offers, and free sample distribution. Sales promotion is usually undertaken to supplement other promotional efforts such as advertising and personal selling.
Question 5.
………………….. refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest. [1]
(A) Capital Structure
(B) Earning per share
(C) Trading on equity
(D) Return on Investment
Answer:
(C) Trading on equity
Explanation:
Investors and borrowers use borrowed funds to increase their potential returns on investments with presence of fixed financial charges like interest. This is Trade on Equity.
Question 6.
Identify the function of management missing in the above illustrated image: [1]
(A) Planning
(B) Coordination
(C) Staffing
(D) Directing
Answer:
(B) Coordination
Explanation:
Coordination is a process by which a manager synchronises the activities of different departments to achieve the common organizational goals. In the absence of coordination, there will be chaos and conflicts in the organization.
Question 7.
Which of the following statement is incorrect? [1]
(A) Capital Market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested.
(B) Secondary market is the market where securities are sold by the company to the investors directly or through an intermediary.
(C) Primary Market is the market where only buying of securities takes place. Securities cannot be sold there.
(D) Money Market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year.
Answer:
(B) Secondary market is the market where securities are sold by the company to the investors directly or through an intermediary.
Question 8.
M/s J.K. Computers’ is a small organisation engaged in assembling of computers. In this organisation, decision making rests with top management while the middle level is involved in only the implementation of plans. On the other hand, ‘Progressive Computers Ltd.’ is a large company where a number of people from each level are involved in the decision-making process.
The application of the principle of ‘Centralisation and Decentralisation’ is different in the two organisations as the situation in each enterprise is not same. [1]
From the following identify the nature of principles of management:
(A) Mainly Behavioural
(B) Dynamic
(C) Flexible
(D) General guidelines
Answer:
(C) Flexible
Explanation:
As the two organisation uses a different method, so the principle of management is flexible and can be adopted as per the requirement of the company.
Question 9.
From the following, identify the channel of distribution in which goods pass from the manufacturer to the retailers who, in turn, sell them to the final users. [1]
(A) One Level channel
(B) Two level channel
(C) Three level channel
(D) Zero-level channel.
Answer:
(A) One Level channel
Explanation:
In the channel of distribution used, the manufacturer is involving one intermediary that is retailer, so it is one level channel of distribution.
Question 10.
Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below:
Assertion (A): Management helps in achieving personal objectives.
Reason (R): Through motivation and leadership the management helps individuals to develop team spirit, cooperation and commitment to group success. [1]
Alternatives:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true .
Answer:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Explanation:
A manager motivates and leads his team in such a manner that individual members are able to achieve personal goals while contributing to the overall organizational objective.
Question 11.
Which type of organisational structure will you suggest for a firm which has diversified activities and operations requiring a high degree of specialisation? [1]
(A) Centralised structure
(B) Informal Structure
(C) Divisional structure
(D) Functional structure
Answer:
(D) Functional structure
Explanation:
Grouping of jobs of similar nature under functions and organising these major functions as separate departments creates a functional structure. All departments report to a coordinating head. For example, in a manufacturing concern division of work into key functions will include production, purchase, marketing, accounts and personnel. These departments may be further divided into sections. Thus, a functional structure is an organisational design that groups similar or related jobs together.
Question 12.
Which of the following statements establishes a relationship between planning and controlling? [1]
(A) Planning and controlling are inseparable twins of management.
(B) Planning is clearly a prerequisite for controlling.
(C) Planning is looking ahead while controlling is looking backward.
(D) All of the above
Answer:
(D) All of the above
Question 13.
Statement I: The concept of product relates to not only the physical product but also the benefits offered by it from customer’s point of view.
Statement II: The concept of product does not include the extended product by way of after sale services availability of spare parts, handling complaints, etc. [1]
(A) Statement I is correct and statement II is wrong.
(B) Statement II is correct and statement I is wrong.
(C) Both the statements are correct.
(D) Both the statements are wrong.
Answer:
(A) Statement I is correct and statement II is wrong.
Explanation:
The concept of a product includes all aspects of the product that the customer receives, including the physical product, its features, quality, packaging, branding, after-sale services, and other attributes that add value to the product. These attributes can significantly impact the customer’s satisfaction with the product and their overall experience with the brand. Therefore, companies must consider the extended product when developing and marketing their products.
Question 14.
‘Cartoony Planet’ is a well-known indoor playground for organising parties for children in Noida. It has many play-stations and it organises various activities for the kids to enjoy. Looking at the increasing number of children visiting ‘Cartoony Planet’, a new indoor playground in the name of Tmy-Tots House’ came up with advanced swings, play stations and entertainment activities near ‘Cartoony Planet’.
To compete with the newly opened indoor playground, ‘Cartoony Planet’ also added some advanced swings and entertainment activities to attract more children.
The above information highlights one of the features of ‘Business Environment’. Identify the feature from the following: [1]
(A) Uncertainty
(B) Dynamic Nature
(C) Relativity
(D) Interrelatedness
Answer:
(B) Dynamic Nature
Explanation:
As the business environment completely changed for ‘Cartoony Planet’, the feature depicted is Dynamic.
Question 15.
Arrange the following steps in the process of organising in the correct sequence: [1]
(a) Assignment of duties
(b) Departmentalisation
(c) Identification and division of work
(d) Establishing reporting relationship
Choose the correct option:
(A) (a); (b); (d); (c)
(B) (c); (b); (a) ; (d)
(C) (c); (b); (d); (a)
(D) (b); (c) ; (a); (d)
Answer:
(B) (c); (b); (a) ; (d)
Explanation:
The first step in the process of organising involves identifying and dividing the work that is to be done in accordance with previously determined plans. Then the activities which are similar in nature are grouped together to define the work of different job positions. Once departments have been formed, each of them is placed under the charge of an individual. Jobs are then allocated to the members of each department in accordance to their skills and competencies. Merely allocating work is not enough. Each individual should also know who he has to take orders from and to whom he is accountable.
Question 16.
Statement I: Capital Market instruments are considered riskier both with respect to return and principal repayment.
Statement II: Capital Market investment generally yield a higher return for investors.
Choose the correct option from options given below: [1]
(A) Statement I is correct and statement II is wrong.
(B) Statement II is correct and statement I is wrong.
(C) Both the statements are correct.
(D) Both the statements are wrong.
Answer:
(C) Both the statements are correct.
Question 17.
Which of the following items is a component of economic environment? [1]
(A) Expansion of transportation and communication services in Delhi
(B) Facility of booking train tickets through mobile apps
(C) Restriction on 15-year-old petrol vehicle plying on roads in Delhi
(D) The Haryana Government’s announcement of free bus rides for females on the occasion of Rakshabandhan.
Answer:
(A) Expansion of transportation and communication services in Delhi
Explanation:
Facility of booking train ticket is a part of technological environment. Restriction of 15-year-old vehicles is a part of ecological environment. Haryana Government’s decision is a political environment.
Question 18.
Match the component of Product mix in Column I with their MEANING in Column II. [1]
Column I | Column II | ||
(a) | Branding | (1) | Value of the good |
(b) | Labelling | (2) | Keeping the product safe |
(c) | Packaging | (3) | Description of the Product |
(d) | Pricing | (4) | Making the product known |
(A) (a) (2), (b)(4), (c)(3), (d)(1)
(B) (a) (4), (b)(3), (c)(2), (d)(1)
(C) (a) (3), (b)(2), (c)(4), (d)(1)
(D) (a) (2), (b)(4), (c)(1), (d)(3)
Answer:
(B) (a) (4), (b)(3), (c)(2), (d)(1)
Question 19.
Himanshu is working as a ‘Marketing Manager’ in ‘Suvidit-Air Conditioners’, a well known brand in the field of air-conditioners. Till last month the company was able to achieve its sales targets. But this month Himanshu observed that targets were not being met and the number of air-conditioners sold was decreasing. He analysed the situation and found that the new salesman appointed last month was not good and for this he took necessary action.
Which of the following function of management helped Himanshu to identify the decrease in sale? [1]
(A) Planning
(B) Organising
(C) Directing
(D) Controlling
Answer:
(D) Controlling
Question 20.
“Even after opening up of the Indian economy in 1991 foreign companies found it extremely difficult to cut through the bureaucratic red tape to get permits for doing business in India, which created a negative impact on business.”
Identify the dimension of the business environment which led to creation of the negative impact on business. [1]
(A) Social Environment
(B) Technological Environment
(C) Political Environment
(D) Legal Environment
Answer:
(C) Political Environment
Explanation:
Political Environment means that the actions were taken by the government, which potentially affect the routine activities of any business or company on a domestic or at the global level.
Question 21.
Monika, Rashmi and Garima are school friends. After completing their education Monika joined a school as a teacher. Rashmi joined a firm as a Chartered Accountant and Garima as a General Manager in a Multinational Company. After a long time in are union function of the school, they met each other. Rashmi said that they were all professionals now. Garima told Rashmi that she can say this about Monika and herself, but not about her since Manager is not considered a full-fledged professional. Why did Garima say that she is not a professional? State any three points in support of your answer. [3]
Answer:
The features of management that do note stablish it as a profession are:
(i) Restricted entry: The entry to a profession is restricted through a prescribed qualification. But there is no restriction on anyone being appointed as a manager in any business enterprise.
(ii) Professional association: All professions are affiliated to a professional association which regulates entry and grants certificate of practice. There is no compulsion for managers to be members of such associations.
(iii) Ethical code of conduct: All professions are bound by a code of conduct which guides the behaviour of its members. A1MA has devised a code of condurt for Indian managers but there is no statutory backing for this code.
(iv) Service motive: The motive of a profession is to serve their client’s interests by rendering dedicated and committed service. The basic purpose of management is to help the organization to achieve its stated goal which may be profit maximisation.
However, profit maximisation as the objective of management does not hold true and is fast changing. So, presently this feature of profession is not fully present in management.
Question 22.
Explain- (i) Ensuring order and discipline, and (ii) Facilitating co-ordination in action, as importance of controlling function of management.
OR
Explain (i) Critical point control, and (ii) Management by exception, as an important part of ‘Analysing Deviations’ a step in the process of controlling. [3]
Answer:
(i) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities.
(ii) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organisational goals. Each department and employee are governed by predetermined standards which are well coordinated with one another. This ensures that overall organisational objectives are accomplished.
OR
(i) Critical Point Control: It is neither economical nor easy to keep a check on each and every activity in an organization. Control should, therefore, focus on key result areas (KRAs) which are critical to the success of an organization. These KRAs are set as the critical points. If anything goes wrong at the critical points, the entire organization suffers. For instance, in a manufacturing organization, an increase of 5 percent in the labour cost may be more troublesome than a 15 per cent increase in postal charges.
(ii) Management by Exception: Management by exception, which is often referred to as control by exception, is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing. Thus, only significant deviations which go beyond the permissible limit should be brought to the notice of management. Thus, if the plans lay down 2 % increase in labour cost as an acceptable range of deviation in a manufacturing organization, only increase in labour cost beyond 2 % should be brought to the notice of the management. However, in case of major deviation from the standard (say, 5 %), the matter has to receive immediate action of management on a priority basis.
Question 23.
After passing his secondary school examination, David left the school at the age of 15 years and started getting training under his father. His father, a renowned electrician, had worked for many companies. He everyday started accompanying his father on work and watched him carefully while working. David was a good learner and learnt the techniques of work quickly. Now his father started passing on the tricks of the trade to David. With the passage of time David acquired a high level skill and became a well-known electrician in Indore. Big business houses started calling him for electrical-wiring.
(i) Name the method of training discussed in the above para.
(ii) State any three benefits which David could get on being trained. [3]
Answer:
(i) Apprenticeship Training
(ii) Benefits which David could get on being trained:
(a) It may lead to his promotion and career growth due to improved skills and knowledge.
(b) It will help him to earn more due to improved performance.
(c) It will reduce accidents as he will be more efficient to handle machines.
(d) It will increase his satisfaction and morale.
Question 24.
State any three development functions of Securities and Exchange Board of India.
OR
State any three factors affect the working capital requirements of a company. [3]
Answer:
Development Functions of Securities and Exchange Board of India:
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible approach.
OR
Factors which affect the requirements of working capital are:
(i) Business cycle as in case of boom, larger working capital is required as the sales and production are more.
(ii) Seasonal factors as peak season requires higher working capital than lean season due to higher level of activity.
(iii) Production cycle as working capital requirement is higher in firms with longer processing cycle.
(iv) Credit allowed to customers results in higher amount of debtors, increasing the working capital requirement.
(v) Operating efficiency as firms managing their raw materials efficiently require lesser working capital.
(vi) Free and continuous availability of raw materials enables the firms to keep lesser stock and hence work with smaller working capital.
(vii) Higher growth prospects will require larger amounts of working capital so that the firm is able to meet higher production and sales targets.
(viii) Level of competition as higher competition requires larger stocks to meet urgent orders from customers and thus higher working capital.
(ix) Inflation increases the working capital requirements as larger amount of money is required to maintain a constant volume of production and sales.
Question 25.
Give the meaning of Formal Communication and Informal Communication.
OR
State any four organisational barriers of communication. [4]
Answer:
Formal Communication flows through official channels designed in the organization chart. This communication may take place between a superior and subordinate, a subordinate and superior or among employees or managers of the same unit.
Communication that takes place without following the formal lines of communication is said to be informal communication. Informal system of communication is generally referred to as ‘grapevine’ because it spreads throughout the organization with its branches going out in all directions in utter disregard to the levels of authority.
OR
Organisational Barriers:
(i) Organisational policy: If the organisational policy, explicit or implicit, is not supportive to the free flow of communication, it may hamper effectiveness of communication. For example, in an organisation with highly centralised pattern, people may not be encouraged to have free communication.
(ii) Rules and regulations: Rigid rules and cumbersome procedures may be a hurdle to communication. Similarly, communications through prescribed channel may result in delays.
(iii)Status: Status of superior may create physiological distance between him and his subordinates. A status conscious manager also may not allow his subordinates to express their feelings freely.
(iv) Complexity in organisation structure: In an organisation where there are number of managerial levels, communication gets delayed and distorted as number of filtering points are more.
(v) Organisational facilities: If facilities for smooth, clear and timely communication is not provided then communication may be hampered. Facilities like frequent meetings, suggestion box, complaint box, social and cultural gathering, transparency in operations, etc., will encourage free flow of communication. Lack of these facilities may create communication problems.
Question 26.
Enumerate any four benefits of the process by which the aptitudes, skills and abilities of employees to perform specific jobs are increased.
OR
Give any four differences between training and development. [4]
Answer:
The benefits of training to an organization are as follows:
(i) Training is a systematic learning. It is always better than hit and trial methods which lead to wastage of efforts and money.
(ii) It enhances employee productivity both in terms of quantity and quality, leading to higher profits.
(iii)Training equips the future manager who can take over in case of emergency.
(iv) Training increases employee morale and reduces absenteeism and employee turnover.
(v) It helps in obtaining an effective response to a fast changing environment -technological and economic.
OR
Difference between Training and Development:
S. No. | Basis of difference | Training | Development |
(i) | Nature | It is practical in nature. | It is both, practical as well as theoretical in nature. |
(ii) | Contents | It is job oriented. | It is career oriented. |
(iii) | Participants | Generally for non-managers. | Generally for managers. |
(iv) | Duration | A short duration programme. | A continuous process. |
(v) | Cost | Cost is paid by the employer. | Cost may be paid by the employer and/or trainee |
(vi) | Meaning | Improving knowledge and skills for doing a specific job. | Overall growth of a person. |
Question 27.
Mayank purchased a pack of chocolates of a renowned brand for his daughter from a shop in the nearby market. After consuming the chocolates, his daughter fell sick. He filed a case with the District forum against the renowned brand. He lost the case because of a mistake that he could not provide proof of purchase. What responsibilities should be kept in mind by a consumer while purchasing, using and consuming goods and services apart from avoiding the mistake committed by Mayank, in order to enable him/her to achieve the objective of consumer protection? Enumerate any four points. [4]
Answer:
A consumer should keep in mind the following responsibilities while purchasing, using and consuming goods and services:
(i) Be aware about various goods and services available in the market so that an intelligent and wise choice can be made.
(ii) Buy only standardized goods as they provide quality assurance. Thus, look for ISI mark on electrical goods, FPO mark on food products, Hallmark on jewellery, etc.
(iii) Learn about the risks associated with products and services, follow manufacturer’s instructions and use the products safely.
(iv) Read labels carefully so as to have information about prices, net weight, manufacturing and expiry dates, etc.
(v) Assert yourself to ensure that you get a fair deal.
(vi) Be honest in your dealings. Choose only from legal goods and services and discourage unscrupulous practices like black-marketing, hoarding, etc.
(vii) File a complaint in an appropriate consumer forum in case of a shortcoming in the quality of goods purchased or services availed. Do not fail to take an action even when the amount involved is small.
(viii)Form consumer societies which would play an active part in educating consumers and safeguarding their interests.
(ix) Respect the environment. Avoid waste, littering and contributing to pollution.
Question 28.
Somnath Ltd. is engaged in the business of export of garments. In the past, the performance of the company had been up to the expectations. In line with the latest technology, the company decided to upgrade its machinery. For this the Finance Manager, Dalmia estimated the amount of funds required and the timings. This will help the company in linking the investment and the financial decisions on a continuous basis. Dalmia therefore, began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this he wanted to be sure about the availability of funds from the internal sources of the business. For the remaining funds he is trying to find out alternative sources from outside. Identify the financial concept discussed in the above para. Also, state the objectives to be achieved by the use of financial concept, so identified. [4]
Answer:
Financial planning: Financial planning refers to the planning regarding financial needs of the enterprise, various sources of raising funds and their optimum utilisation.
Objectives of financial planning:
(i) To ensure availability of adequate funds at the right time: This includes a proper estimation of funds required for different purposes such as for the purchase of long-term assets or to meet day-to-day expense of business. Apart from this, it is essential to estimate the time at which the funds are to be made available. Based on these facts, funds could be raised from short-term and long-term sources.
(ii) To see that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. So, the financial manager must see to it that the company does not raise more capital than the requirement of the business. In case there is surplus cash or liquidity, the excess funds should be utilised judiciously.
Question 29.
Identity and explain the elements of directing mentioned below: [4]
(i) Rajeev is an HR manager leading a team of 12 people. He knows that the duties and responsibilities of an HR employee are challenging. He knows that in order to make his team work with a positive frame of mind, he will have to set a personal example as a role model and influence their behaviour and working style to increase the output of his team.
(ii) Priya and Raghav are discussing about an element of directing. They say that without this element no group or people can achieve a common understanding. This element requires effort from both the sides and consumes 90% of the time of a manager.
Answer:
(i) Leadership: Leadership is the process of influencing the behaviour of people by making them strive voluntarily towards the achievement of organisational goals.
(ii) Communication: Communication is a process by which people create and share information with one another in order to reach at a common understanding.
Question 30.
NB Ltd. is India’s largest manufacturer of cement. Its operations are spread throughout the country with 17 modern cement factories. It has a work force of 9,000 people. Since its inception, the company has been a trend setter for the cement industry. The company is planning to grow in the long-run and wants to double its capacity in the next 3 years. For this the Finance Manager has to decide about the quantum of finance to be raised from various long-term sources. For this he needs to identify various available sources of funds and the proportion of funds from each source.
(i) Identify and explain the financial decision to be taken by the Finance Manager.
(ii) State any two factors which would affect the decision identified in (i) above. [4]
Answer:
(i) Financing Decision: This decision is about the quantum of finance to be raised from various long-term sources. Short-term sources are studied under the ‘working capital management’. A firm has to decide the proportion of funds to be raised from either from shareholder’s funds or borrowed funds, based on their basic characteristics.
(ii) Factors affecting financing decision are as follows:
(a) Cost: The cost of raising funds through different sources is different. A prudent financial manager would normally opt for a source which is the cheapest.
(b) Risk: The risk associated with each of the sources is different.
(c) Flotation Costs: Higher the flotation cost, less attractive the source.
(d) Cash Flow Position of the Company: A stronger cash flow position may make debt financing more viable than funding through equity.
(e) Fixed Operating Costs: If a business has high fixed operating costs (e.g., building rent, insurance premium, salaries, etc.), it must reduce fixed financing costs. Hence, lower debt financing is better. Similarly, if fixed operating cost is less, more of debt financing may be preferred.
(f) Control Considerations: Issues of more equity may lead to dilution of management’s control over the business. Debt financing has no such implication. Companies afraid of a takeover bid would prefer debt to equity.
(g) State of Capital Market: Health of the capital market may also affect the choice of source of fund. During the period when stock market is rising, more people invest in equity. However, depressed capital market may make issue of equity shares difficult for any company.
Question 31.
Briefly explain any three of the following techniques of Scientific Management as given by F.W Taylor: [6]
(i) Method study
(ii) Functional foremanship
(iii) Standardization
(iv) Differential piece wage system
Answer:
Techniques of Scientific Management given by F.W. Taylor:
(i) Method Study: The objective of method study is to find out one best way of doing the job. There are various methods of doing the job. To determine the best way there are several parameters. Right from procurement of raw materials till the final product is delivered to the customer every activity is part of method study. Taylor devised the concept of assembly line by using method study. Ford Motor Company used this concept very successfully. Even now auto companies are using it. The objective of the whole exercise is to minimize the cost of production and maximize the quality and satisfaction of the customer. For this purpose many techniques like process charts and operations research, etc. are used. For designing a car, the assembly line production would entail deciding the sequence of operations, place for men, machines and raw materials, etc. All this is part of method study.
(ii) Functional Foremanship: Functional foremanship is an extension of the principle of division of work and specialization to the shop floor. Each worker will have to take orders from these eight foremen in the related process or function of production. Foremen should have intelligence, education, tact, grit, judgment, special knowledge, manual dexterity, and energy, honesty and good health. Since all these qualities could not be found in a single person, Taylor proposed eight specialists. Each specialist is to be assigned work according to her/his qualities. For example, those with technical mastery, intelligence and grit may be given planning work. Those with energy and good health may be assigned execution work.
(iii)Standardization: Standardization refers to the process of setting standards for every business activity; it can be standardization of process, raw material, time, product, machinery, methods or working conditions. These standards are the benchmarks, which must be adhered to during production. The objective of standardization are: (i) To reduce a given line or product to fixed types, sizes and characteristics, (ii) To establish interchangeability of manufactured parts and products, (iii) To establish standards of excellence and quality in materials, (iv) To establish standards of performance of men and machines
(iv) Differential Piece Wage System: Taylor was a strong advocate of a piece wage system. He wanted to differentiate between efficient and inefficient workers. The standard time and other parameters should be determined on the basis of the work-study discussed above. The workers can then be classified as efficient or inefficient on the basis of these standards. He wanted to reward efficient workers. So he introduced different rates of wage payment for those who performed above standard and for those who performed below standard.
OR
Principles of Management given by Henry Fayol:
(i) Unity of Command: According to Fayol there should be one and only one boss for every individual employee. If an employee gets orders from two superiors at the same time; the principle of unity of command is violated. The principle of unity of command states that each participant in a formal organization should receive orders from and be responsible to only one superior. Fayol gave a lot of importance to this principle. He felt that if this principle is violated “authority is undermined; discipline is in jeopardy, order disturbed and stability threatened”. The principle resembles military organization. Dual subordination should be avoided. This is to prevent confusion regarding tasks to be done. Suppose a sales person is asked to clinch a deal with a buyer and is allowed to give a 10% discount by the marketing manager. But the finance department tells her/ him not to offer more than 5% discount. Now there is no unity of command. This can be avoided if there is co-ordination between various departments.
(ii) Equity: Good sense and experience are needed to ensure fairness to all employees, who should be treated as fairly as possible,” according to Fayol. This principle emphasizes kindliness and justice in the behaviour of managers towards workers. This will ensure loyalty and devotion. Fayol does not rule out use of force sometimes. Rather he says that lazy personnel should be dealt with sternly to send the message that everyone is equal in the eyes of the management. There should be no discrimination against any one on account of sex, religion, language, caste, belief or nationality, etc. In practice we can observe that now a days in multinational corporations people of various nationalities work together in a discrimination free environment. Equal opportunities are available for everyone in such companies to rise.
(iii)Remuneration of Employees: The overall pay and compensation should be fair to both employees and the organization. The employees should be paid fair wages, which should give them at least a reasonable standard of living. At the same time it should be within the paying capacity of the company. In other words, remuneration should be just and equitable. This will ensure a congenial atmosphere and good relations between workers and management. Consequently, the working of the company would be smooth.
(iv) Initiative: Workers should be encouraged to develop and carry out their plans for improvements according to Fayol. Initiative means taking the first step with self-motivation. It is thinking out and executing the plan. It is one of the traits of an intelligent person. Initiative should be encouraged. But it does not mean going against the established practices of the company for the sake of being different. A good company should have an employee suggestion system whereby initiative/suggestions which result in substantial cost/time reduction should be rewarded.
Question 32.
Explain ‘Policy’ and ‘Method’ as type of plans
OR
Explain the following limitations of planning:
(i) Planning reduces creativity
(ii) Planning involves huge cost [6]
Answer:
POLICY: Policies are general statements that guide thinking or channelise energies towards a particular direction. Policies provide a basis for interpreting strategy which is usually stated in general terms. Major company policies are for all to know i.e., customers, clients, competitors, etc., whereas minor polices are applicable to insiders and contain minute details of information vital to the employees of an organisation. Policies define the broad parameters within which a manager may function. The manager may use his/her discretion to interpret and apply a policy.
METHOD: Methods provide the prescribed ways or manner in which a task has to be performed considering the objective. It deals with a task comprising one step of a procedure and specifies how this step is to be performed. Methods may vary from task to task. Selection of proper method saves time, money and effort and increases efficiency.
OR
(i) Planning reduces creativity: When managers become overly committed to a plan, they may become resistant to changes or new ideas. They may focus solely on executing the plan as it was originally designed, even if the business environment or other factors have changed. This rigidity can make it difficult for employees to offer new suggestions or ideas for improvement, as they may be dismissed as inconsistent with the plan.
In addition, excessive planning can create a bureaucratic environment that discourages experimentation or innovation. This is because employees may become more focused on following established procedures rather than trying new approaches or taking risks.
(ii) Planning involves huge costs: When plans are drawn up huge costs are involved in their formulation. These may be in terms of time and money for example, checking accuracy of facts may involve lot of time. Detailed plans require scientific calculations to ascertain facts and figures. The costs incurred sometimes may not justify the benefits derived from the plans. There are a number of incidental costs as well, like expenses on boardroom meetings, discussions with professional experts and preliminary investigations to find out the viability of the plan.
Question 33.
Read the statement given in point (i) and (ii) and answer the questions that follows:
(i) Gitanjali uses people to go door to door to sell her products.
(a) Identify and explain the promotion technique that Gitanjali can use to fulfill her objective.
(b) State any two features that such promotion technique offers.
(ii) Yasmin wants to make her product very attractive by packing it in a very good way.
(a) Identify and explain the element of product mix that she wants to use.
(b) State any two functions performed by such element. [6]
Answer:
(i) (a) Personal Selling or Salesmanship: Personal selling is a very effective promotional tool. In simple words, personal selling means “Selling products personally.” It involves oral presentation of message in the form of conversation with one or more prospective customers for the purpose of making sales.
(b) Features are:
(1) Personal Form: Under personal selling a personal contact is established between the buyers and the salesman. In other words, both the parties face each other.
(2) Development of Relationship: Personal selling results in the development of personal relationship between the sales person and the possible buyer. Such a relationship has an important place in sales.
(ii) (a) The element of product mix is packaging. Packaging refers to covering, wrapping, crafting, filling, compressing of goods to protect them from spoilage, pilferage, breakage, etc.
(b) The functions performed by packaging are:
(1) Prestige: Packaging facilitates the branding and labelling of a product. The brand name and label can be easily printed on the package. It lends individuality and prestige to the product.
(2) Economy: Packaging reduces the cost of transportation and storage and widens the market. Properly packaged goods require less space.
Question 34.
Mantra Ltd. is a leading garment manufacturing company. With the help of proper delegation, it has enabled the existence of proper workforce to take up leading positions in several challenging projects. The company has been in news for good reasons related with innovation. Due to proper delegation the relationships between the superiors and the subordinates are properly defined at various levels leading to creation of a strong management structure. Last year it was awarded for good administration. Due to proper delegation there is no overlapping of duties and duplication of efforts as there is clarity of working relationships. The company is acting as a role model for other players in the industry. The productivity of the organisation has improved as it is very organised. Specific jobs are done only by specific workers resulting in increase of efficiencies at individual levels. The company is now thinking of going global and has recently opened a branch in Australia. However, the conditions are going to be different there. Keeping in mind the strong organizing of the company it is expected that it will be able to modify its organisational structure and prove its superiority there also. Recently a meeting is held by the top management. It isdecided that the organisation will go for a major shift in policy decision and involve the lower level of management in decision making. The size of the company is growing so it will require more participation
from the employees.
(i) Identify and briefly explain the concept used by the company in the above case.
(ii) Also, explain any four points of importance of the concept identified in (i) above z
Answer:
(i) Delegation of authority is the concept used by Mantra Ltd. in the above case which helped it in focusing on objectives. Delegation of authority is the process of granting of authority to the subordinates to operate within prescribed limits.
Delegation refers to the downward transfer of authority from a superior to a subordinate. It is a pre-requisite to the efficient functioning of an organisation because it enables a manager to use his time on high priority activities. It also satisfies the subordinate’s need for recognition and provides them with opportunities to develop and exercise initiative. Delegation helps a manager to extend his area of operations as without it, his activities would be restricted to only what he himself can do.
(ii) Importance of delegation of authority:
(a) Effective management: By empowering the employees, the managers are able to function more efficiently as they get more time to concentrate on important matters. Freedom from doing routine work provides them with opportunities to excel in new areas.
(b) Employee development: As a result of delegation, employees get more opportunities to utilise their talent and this may give rise to latent abilities in them. It allows them to develop those skills which will enable them to perform complex tasks and assume those responsibilities which will improve their career prospects. It makes them better leaders and decision makers. Thus, delegation helps by preparing better future managers. Delegation empowers the employees by providing them with the chance to use their skills, gain experience and develop themselves for higher positions.
(c) Motivation of employees: Delegation helps in developing the talents of the employees. It also has psychological benefits. When a superior entrusts a subordinate with a task, it is not merely the sharing of work but involves trust on the superior’s part and commitment on the part of the subordinate. Responsibility for work builds the self-esteem of an employee and improves his confidence. He feels encouraged and tries to improve his performance further.
(d) Facilitation of growth: Delegation helps in the expansion of an organisation by providing a ready workforce to take up leading positions in new ventures. Trained and experienced employees are able to play significant roles in the launch of new projects by replicating the work ethos they have absorbed from existing units, in the newly set up branches.
(e) Basis of management hierarchy: Delegation of authority establishes superior-subordinate relationships, which are the basis of hierarchy of management. It is the degree and flow of authority which determines who has to report to whom. The extent of delegated authority also decides the power that each job position enjoys in the organisation.
(f) Better coordination: The elements of delegation, namely authority, responsibility and accountability help to define the powers, duties and answer ability related to the various positions in an organisation. This helps to avoid overlapping of duties and duplication of effort as it gives a clear picture of the work being done at various levels. Such clarity in reporting relationships help in developing and maintaining effective coordination amongst the departments, levels and functions of management.