Students can access the CBSE Sample Papers for Class 12 Entrepreneurship with Solutions and marking scheme Set 1 will help students in understanding the difficulty level of the exam.
CBSE Sample Papers for Class 12 Entrepreneurship Set 1 with Solutions
Time Allowed: 3 hours
Maximum Marks: 70
General Instructions:
- This question paper contains 34 questions.
- The question paper contains 4 sections – A, B, C and D.
- Part A contains multiple choice questions.
- Part B – 2 marks; Answers to these questions may be from 30 – 40 words.
- Part C – 3 marks; Answers to these questions may be from 50 – 75 words.
- Part D – 5 marks; Answers to these questions may be from 120 – 150.
- Internal choice is given in the paper, there is no overall choice.
Part – A(18 Marks)
Question 1.
Suraj and Chandni are a young couple having three years old daughter Roshni. Suraj is employed with a multinational company and is posted in Spain. Chandni is also working as an executive with an IT firm in Gurugram and is staying with her in-laws in a locality of South Delhi. She wants to admit her daughter in a reputed day boarding school, but is unable to visit the schools and identify one where she could admit Roshni. She discussed the problem with Suraj. Suraj identified the problem and advised Chandni to hire a computer operator who could collect data related to admission in nursery class by visiting the websites of different schools located in Delhi and NCR. He also advised Chandni to launch her own website www.nurseryadmission.com and upload the data so collected on it so that the same could be used by other parents like them for admission of their wards. Chandni followed the advice of Suraj and appointed a computer operator. She provided all facilities to him in the basement of her home. Large number of parents visited the website started by Chandni on an online payment of ₹100 per visit. The entrepreneurship concept discussed in the above para is:
(A) Product Identification
(B) Idea field
(C) Idea Generation
(D) Creative efforts
Answer:
(A) Product Identification
Explanation: An idea should lead the entrepreneur to a definite product/service which he can sell. So, the first step is to obtain a concept of the product or service suggested by one idea. An entrepreneur also sees whether this product is already available in the market or not. If it is, then we should identify the reason for introducing the same product or service in the market.
Question 2.
The Chief Executive Officer of Yashshree Ltd. always pays special focus on one element of business plan that ensures the orderly flow of materials from raw state to finished product with a proper system of quality control, as according to him ‘work your plan’ is more important than ‘plan your work’. Out of following, identify the element that is the priority of the CEO of the company:
(i) Operational plan
(ii) Financial plan
(iii) Production plan
(iv) Human resource plan
(A) (i) only
(B) (ii), (iii)
(C) (ii), (iv)
(D) (iii) only
Answer:
(A) (i) only
Explanation: The operational plan is a blue print prepared right in advance of actual operations ensuing orderly flow of materials in the manufacturing process from the beginning (raw state) to the end (the finished products), facilitating continuous production, lesser work-in-progress and minimization of wastage, coordinating the work of engineering, purchasing, production, selling and inventory management, etc.
Question 3.
Assertion (A): Environment analysis is the process of monitoring the economic and non-economic environment.
Reason (R): Environment analysis involves data collection, information processing and forecasting.
(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(C) (A) is correct, but (R) is wrong.
(D) (A) is wrong, but (R) is correct.
Answer:
(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).
Explanation: Environment analysis is the process of monitoring the economic and non-economic environment, to determine the opportunities and threats to an organisation. Such an analysis involves data collection, information processing and forecasting to provide a rational basis for developing goals and strategies for business survival and growth.
Question 4.
Assertion (A): A good financial plan has a scope for making changes in the future.
Reason (R): A good financial plan has clearly defined objectives.
(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(C) (A) is correct, but (R) is wrong.
(D) (A) is wrong, but (R) is correct.
Answer:
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
Explanation: A good financial plan has a scope for making changes in the future. The plan is made flexible considering future obligations and future plans of the enterprise.
Question 5.
Ravi created a portable incinerator to be installed in the houses. The dry waste generated at homes can be converted by it into ash that can be used as manure for plants. He has installed five prototypes of this incinerator in his society to test its working and to prove its value. Ravi is in the which stage of his product?
(A) Preparation
(B) Incubation
(C) Illumination
(D) Verification
Answer:
(D) Verification
Explanation: Verification is also called the validation or testing stage. This is where the idea is verified to prove that it has value. This is the most difficult phase of creativity as obstacles begin to appear. This is the developing stage in which knowledge is developed into application.
Question 6.
Hina was manufacturing beauty products and was always on the lookout to improvise her products. She used social media and online surveys to understand the latest trend in customer needs and overall cosmetics industry. Through the surveys, she understood that the customers prefer natural ingredients like multani mitti or neem in place of chemicals in the beauty products. Responding to customers’ needs, she developed “Multani Mitti cum Neem Face Pack” in an attractive package. It was highly priced as she knew that the customers will be ready to pay the price for the quality. Her face pack was an instant success. Out of the following, identify the way in which Hina spotted this trend:
(A) Think trend
(B) Read trend
(C) Watch trend
(D) None of these
Answer:
(A) Think trend
Explanation: As an entrepreneur begins gathering information regularly, they will start to develop a “trend-spotter mind.” As they absorb and mull about what they’ve read, heard and observed, they’ll start to make connections and observations that will lead to business-boosting insights.
Question 7.
Which of the following is the feature of sole proprietorship:
(A) Limited liability
(B) Difficult to form
(C) Difficult to close
(D) Individual management and control
Answer:
(D) Individual management and control
Explanation: As all the rights and responsibilities lie with the sole proprietor that is why he controls all the business activities. What is to be done, how it is to be done, and when it is to be done, all affairs are managed and controlled by the sole proprietor. No one can interfere in the business activities of a sole proprietor. Hence, only the sole proprietor can modify his plans accordingly.
Question 8.
There is ______ relationship between opportunities and problem solving.
(A) Direct
(B) Indirect
(C) Proportional
(D) Circular
Answer:
(A) Direct
Explanation: There is a direct relationship between opportunities and problem solving because opportunities create challenges which require problem solving skills. Problem solving skills can also create new opportunities.
Question 9.
Assertion (A): A shorter operating cycle is more favourable.
Reason (R): The cash conversion cycle is the length of time between a firm’s purchase of inventory and the receipt of cash from accounts receivable.
(A) Both (A) and (R) are true, and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
(C) (A) is correct, but (R) is wrong.
(D) (A) is wrong, but (R) is correct.
Answer:
(B) Both (A) and (R) are true, but (R) is not the correct explanation of (A).
Explanation: A shorter operating cycle is more favourable as it means the company has enough cash to maintain operations, recover investments and meet various obligations. In contrast, if a business has a longer operating cycle, it means the company requires more cash to maintain operations.
Question 10.
Anjali who is doing graduation from Delhi University has got an idea to make a safety gadget for college going girls which will give alert message to the registered numbers as well as nearest police stations, if the wearer is in any kind of danger. To execute her idea, she requires finance. She convinced one of her teachers who has the knowledge of making such gadget to provide her finance for feasibility studies. Identify the source of funding used by Anjali.
(i) Angel investor
(ii) Venture Capital
(iii) Capital market
(iv) Primary market
(A) (i) only
(B) (ii) only
(C) (i), (iii)
(D) (ii), (iv)
Answer:
(A) (i) only
Explanation: Business angel or informal investor or an angel investor, is an affluent individual who provides capital for a business start-up and early stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity. They fill the gap in start-up or early-stage financing between “friends and family”, by providing seed funding and formal venture capital.
Question 11.
‘Anjali Organic Farms Ltd.’ wants to grow rarely found medicinal herbal plants which can cure various diseases and are of extreme utility in increasing immunity. For this, the entrepreneur has convinced one venture capital investor to finance the research and development activities and relevant activities. The same VC Investor is financing its competitor firm ‘Sanjeevani Ayurvedic Ltd.’ also. Sanjeevani Ayurvedic Ltd. is also in need of funds for their new project. Venture capitalist decided to extend venture capital to ‘Sanjeevani Ayurvedic Ltd.’. With reference to this case, which of the following considerations should venture capitalist make before extending venture capital to an entrepreneur?
(A) Due diligence
(B) Cost of venture capital
(C) Exit option
(D) All of the above
Answer:
(D) All of the above
Question 12.
A grocery store sold in a day different quantity of different products at the prices indicated against them:
Products | Price Per Unit (₹) | Quantity Sold |
Dal | 40/kg | 35 (kgs) |
Chilli Powder | 40/kg | 10 (kgs) |
Salt | 5/packet | 5 (packets) |
Chips | 15/packet | 10 (packets) |
Juice pack | 5/packet | 5 (packets) |
The shopkeeper also found, based on the number of bills issued by him, that there were 50 customers. If customer is the unit sale, what is the “Unit Price” in the above case?
(A) ₹30
(B) ₹45
(C) ₹40
(D) ₹15
Answer:
(C) ₹40
Question 13.
What method of fund raising is being suggested by the finance department of ABC Ltd. in order to raise funds by issuing shares, with the intention of offering them to existing shareholders in proportion to their current ownership?
(A) Public Issue
(B) Right Issue
(C) Private Placement
(D) Offer to Employees
Answer:
(B) Right Issue
Question 14.
Coal Ltd. is a public company and running its business on the terms defined by government. Stones Ltd. is a private firm owned by Sunny Stone and his brother, Rocky Stone. Stone brothers are planning to expand the business. For that, Sunny wants to merge the company with another private company in order to increase production and earn more profits. But, Rocky wants to acquire a public limited company in order to expand their business to the government market as well. Considering Rocky’s strategy, this type of acquisition is known as ______.
(A) Friendly acquisition
(B) Reverse acquisition
(C) Back flip acquisition
(D) Hostile acquisition
Answer:
(B) Reverse acquisition
Explanation: Reverse acquisition occurs when a private company takes over a public company.
Question 15.
Insights Ltd. is working on expanding the business. They are exploring various opportunities and strategies for their business growth. They planned to hire a new Marketing Manager. Satish appeared for an interview for the above position. During the interview, the HR listed down the steps involved in exploring opportunities in an environment. In light of the above scenario, arrange the steps in correct order as Satish did it.
(i) Evaluating the ideas received from different sources to find a creative solution.
(ii) Identifying a product or service through innovation.
(iii) Opportunity spotting by analysing the needs and problems that exist in the environment.
(iv) Setting up a project and nurturing it to success.
(A) (i), (ii), (iii), (iv)
(B) (iii), (i), (ii), (iv)
(C) (ii), (iii), (iv), (i)
(D) (i), (iv), (iii), (ii)
Answer:
(B) (iii), (i), (ii), (iv)
Question 16.
Rohan and Aman are partners in a car parts manufacturing company. They are planning to expand their business and in order to grow Rohan suggested to merge with another car accessories company, however Aman wanted to acquire another car accessories company. Both mergers and acquisitions are enterprise growth strategies, but how they come into existence makes them different from each other. Which of the below statements justifies the given statement?
(A) Merger is always friendly, whereas acquisition is always hostile.
(B) Merger may be friendly, whereas acquisition is always hostile.
(C) Merger is always dependent on synergy, whereas acquisition is never based on synergy.
(D) Merger is consensual, whereas acquisition is forced.
Answer:
(D) Merger is consensual, whereas acquisition is forced.
Explanation: Usually, mergers occur in a consensual setting, where two or more companies combine to form a new entity, whereas an acquisition is forced as it is the takeover of a company by another company.
Question 17.
Priyam composed a music piece for a song and the lyrics were written by him. He wishes to legally protect his creation. He can get a:
(A) Patent for lyrics and music piece.
(B) Copyright for lyrics and music piece.
(C) Copyright of the lyrics and patent for the music piece.
(D) Trademark for the complete song.
Answer:
(B) Copyright for lyrics and music piece.
Explanation: Copyright gives the creator of original work exclusive rights to it, usually for a limited time.
Question 18.
Which element of marketing is highlighted in the following line:
“A company decided to name his product as Good Sleep”.
(A) Promotion
(B) Place
(C) Product
(D) None of these
Answer:
(C) Product
Explanation: In the given line, the focus is on the naming of a product, which falls under the element of marketing known as “Product.” Naming a product is an important aspect of its branding and positioning in the market.
Part – B(12 Marks)
Question 19.
“Entrepreneurs use this strategy to employ only for a limited duration to recover most of the investment made to build the product. They also use this method to have some setbacks as it could leave the product at a high price against the competition.” Identify and explain the type of pricing strategy.
Answer:
The pricing method used by an entrepreneur is skimming. Selling a product at a high price, sacrificing high sales to gain a high profit is therefore “skimming” the market. Skimming is usually employed to reimburse the cost of investment of the original research into the product commonly used in electronic markets when a new range, such as smart phones, are firstly dispatched into the market at a high price. This strategy is often used to target “early adopters” of a product or service. Early adopters generally have a relatively lower price sensitivity. This can be attributed to need for the product outweighing their need to economics, a greater understanding of the product’s value, or simply having a higher disposable income.
Question 20.
Explain any two characteristics of sole proprietorship form of business organization.
Answer:
Following are the characteristics of sole proprietorship form of business organization:
(i) Individual ownership: This business is exclusively owned by a single person.
(ii) Individual management and control: “What is to be done, how it is to be done, and when it is to be done – all affairs are managed and controlled by the sole proprietor. Though, competent people can also be employed for efficient management.
(iii) Individual financing: All investment is made by the proprietor. Though, if required he/she has access to loans and debts to procure funds for business.
(iv) No separate legal entity: Legally, the proprietor and proprietorship are one and the same Business and owner exists together, thus with owner’s death, business too dies.
(v) Unlimited liability: The proprietor is liable/responsible for all losses arising from business. In case the business assets are insufficient to pay off liabilities, his/her personal property can be called upon to pay his business debts.
(vi) Sole beneficiary: The sole proprietor alone is entitled to all the profits and losses of business. So, he/she puts his/her heart and soul to increase his/her profits.
(vii) Easy formation and closure: Sole proprietorship are subjected to minimum legal formalities and regulations both at the time of commencing and/or closing.
(viii) Limited area of operation: This form of business generally has a limited area of operation due to limited finance availability and limited managerial abilities.
OR
What are the consequences for non-registration of a partnership firm? Give any two.
Answer:
Consequences for non–registration of a partnership firm are as follows:
(i) A partner cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act.
(ii) A right arising from a contract cannot be enforced in any Court by or on behalf of the firm against any third party.
(iii) Further, the firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party.
Question 21.
‘Janata Foods Ltd.’ is a restaurant situated on a national highway near Hyderabad. The following figures have been extracted from the books of Janata Foods Ltd.
₹ | |
Stock of Raw Material | 1,50,000 |
Short-Term Loans | 1,83,000 |
Trade Creditors | 96,000 |
Trade Debtors | 2,25,000 |
Dividend Payable | 1,50,000 |
Tax Payable | 1,32,000 |
Short-Term Investments | 2,28,000 |
From the above information, calculate the following:
(i) Gross Working Capital
(ii) Net Working Capital
Answer:
(i) Gross working capital = Total current assets
= ₹1,50,000 + ₹2,25,000 + ₹2,28,000
= ₹6,03,000
(ii) Net working capital = Gross working capital – Current liabilities
= ₹6,03,000 – ₹1,83,000 – ₹96,000
– ₹1,50,000 – ₹1,32,000
= ₹42,000
OR
The annual quantity of Jackets sold by Meghana Wool Mart is 12,000 at the rate of ₹1000/- per jacket. The cost of placing an order and receiving goods is ₹500/- per order. Inventory holding cost is ₹300/- per annum. What is the Economic Order Quantity for Meghana Wool Mart?
Answer:
D = 12,000
P = ₹500
C = ₹300
EOQ = \(\sqrt{\frac{2 \mathrm{PD}}{\mathrm{C}}}=\sqrt{\frac{2 \times 500 \times 12,000}{300}}=\sqrt{40,000}\)
= 200 Jackets
Question 22.
“Branding plays an important role in Marketing.” How? Explain.
Answer:
Branding is useful in the following ways:
(i) Identification: A product and its enterprise get its identification by its brand name. This reduces the advertising cost.
(ii) Differentiation: Brand name helps in differentiating one product with another. Any particular brand can be easily differentiated from its competitors.
(iii) Better Understanding: Brands develop better understanding of customers with the product. This increases loyalty and consequently reduces marketing efforts.
OR
Explain ‘Distribution Mix’ as an element of ‘Marketing Mix’.
Answer:
Distribution Mix: It is also known as place mix. It is concerned with movement of goods from the place of production to the place of consumption, at right time. It consists of producers, consumers or users and the various middlemen like wholesalers, retailers, etc. Therefore, the channel serves to bridge the gap between the point of production and the point of consumption thereby creating time, place and possession utilities.
Question 23.
Read the following passage and identify and explain any two elements in the PESTEL model which is present in this passage.
Shiny on visiting her friend Rita in Kashmir, found it to be an ideal place to start a new business venture. She started scanning and screening the environment and found that Kashmir is rich in flora and fauna, free from air and land pollution. Kashmiris do not prefer to wear western dress. Because of persisting political unrest and terrorism, a number of residents are unemployed. Local Kashmiris are getting subsidies to open school in backward areas of Kashmir.
Answer:
Ecological factor: Ecological factor considers the ways in which the organisation can produce its goods or services with minimum environmental damage.
Social factor: The social/cultural environment includes population demographics, social mobility, income distribution, lifestyle changes, attitude towards work and leisure, levels of education and consumerism.
Economic factor: The economic environment includes interest rates, inflation, business cycles, unemployment, disposable, income, energy, availability and cost.
Question 24.
Ragini, a career-oriented mother, hardly got time to cook for the family. She decided to hire a cook but was not able to find one who could cook according to the taste of the family. Her sister Abha sensed that this problem is not only faced by her sister but also by many working women. She launched a website namely ‘Dial for food’ where housewives who had culinary ability and were interested to cook could drop in their contact details and households where specific cuisine was required could leave in their requirements so that through the website home cooked food could be delivered. The website mainly helped in identifying the requirement and fulfilled it through providing delivery service. Identify any two uses of problem identification to Abha.
Answer:
(i) Bring out new products in the market.
(ii) Increase employment generation.
(iii) Understand the problems and needs of the market.
Part – C(15 Marks)
Question 25.
“This mode of expansion allows entrepreneurs to be in business for themselves but not by themselves.” Identify and explain the mode of expansion.
Answer:
Franchising. It is as “an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures”. The person offering the franchise is known as the franchisor.
The franchisee is the person who purchases the franchise and is given the opportunity to enter a new business with a better chances of success than if he or she were to start a new business from scratch. Foundation of this relationship is the Franchise Agreement.
OR
What is advertising? State with reason the mode of advertising you would adopt to sell ‘Fast moving consumer Goods’ in urban centres.
Answer:
Advertising: Advertising is a paid form of communication designed to persuade potential customers to choose the product or service over that of a competitor.
Television: One of the most powerful and popular modes of advertisement is television. It is very useful for ‘FMCG.’ It has a large coverage and the reach is easy and speedy. The product attributes can be easily communicated even to the illiterate through visuals. But it is expensive and not within the reach of every entrepreneur, manufacturer and trader.
Question 26.
Komal has started a herbal toothpaste manufacturing unit. She has decided the logo, packaging format and labelling of the product. Her friend Neha asked her whether she has taken care of the legally recognised exclusive rights of other manufacturers in the industry before taking the above stated decisions? Identify and give the meaning of the concept about which Neha asked Komal.
Answer:
Neha asked Kamal about Intellectual Property Rights. An entrepreneur while selecting a product should take care of intellectual property rights. Intellectual property (IP) rights are the legally recognized exclusive rights to creations of the mind. Under this law, owners are granted certain exclusive rights to a variety of intangible assets. Common types of intellectual property rights include copyrights, trade mark, patents, industrial design rights and trade secrets.
Question 27.
“The operation plan regulates the orderly movement of goods through the entire manufacturing cycle.” In the light of the given statement explain any three elements of the operation plan.
Answer:
Following are the elements of the plan:
Routing: Routing is a process concerned with determining exact route or path a product/service has to follow right from raw material till its transformation into finished product.
Scheduling: Scheduling, simply means fixation of time, day, date when each operation is to be commenced and completed. In general, it is the determination of the time that should be required to perform each operation.
Dispatching: The process of initiating production in accordance with pre conceived production plan is said to be dispatching. This includes issuing necessary orders, instructions, guidelines and/or information to work pertaining to giving practical shape to the production plan.
Follow-Up: Follow-up or expediting function relates to evaluation and appraisal of work performed. A properly planned follow-up procedure is helpful in dispatching errors and defects in the work. Followup element helps the entrepreneurs in developing ways to review the present situation with regard to materials, work-in-progress and finished goods, evolving ways to expedite the performance of those departments which lag behind, removing obstacles in the way of production by suggesting remedial measures.
Inspection: Inspection is the art of comparing materials, product or performance with established standards. This element helps the entrepreneur to set up laboratories or evolve strategies/methods to ensure pre determined quality of product/service.
Shipping: This section goes beyond the manufacturing process and describes the flow of goods/ services from production to the consumers. This part is a detailed presentation by the entrepreneur explaining the chronological steps in completing a business transaction efficiently and profitably. Operation plan is greatly affected by Nature of venture, Type of product/service, Scale of operation, and Technology involved.
Question 28.
What is meant by Break even point? Why is it important for an entrepreneur to calculate Breakeven point? State any four reasons.
Answer:
Break even point is that level of volume of production at which firm neither makes a profit nor a loss. Here, the total revenue is equal to the total cost of a firm, at the given level of capacity.
Thus, calculation of BEP is quite useful for the entrepreneur as it helps in assessing:
(i) The minimum level of output to be produced.
(ii) The effect of change in quantity of output upon the profits.
(iii) The selling price of the product.
(iv) The profitable options in line of production.
Thus, break-even analysis is a useful technique for determining how many units must be sold or how much sales volume must be achieved in order to break–even. It helps to indicate the volume of sales needed to cover total variable and fixed expenses by the new enterprise.
OR
“Angel investments is a common second round of financing for high-growth start-ups or early-stage companies.” Comment on the given statement from the perspective of an entrepreneur.
Answer:
Business angel or informal investor or an angel investor, is an affluent individual who provides capital for a business start-up and early-stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity. The job of an angel investor is invaluable. They fill the gap in start-up or early stage financing between “friends and family”, by providing seed funding and formal venture capital. Although it is usually difficult to raise more than a few thousands from friends and family, even the venture capitalist is least interested to make investments. Thus, angel investments are a common second round of financing for high growth start-ups or early-stage companies.
Question 29.
Kapish an unemployed graduate got training for automobile repairing and allied services under PMKVY (Pradhan Mantri Kaushal Vikas Yojana) for skill development. He is planning to start a digital workshop for which he needs 725 lacs. Though through MUDRA (Micro Units Development and Refinance Agency) he is able to get a loan of 710 lacs but still he is falling short of ’15 lacs. He wants to pitch in his idea to potential investors through his business plan. Explain any three formats in which he can present his business plan for his start-up.
Answer:
It is common, especially for start-ups, to have the following formats as follows for the same business plan:
(i) Elevator pitch: It is a three-minute summary of the business plan’s executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.
(ii) A pitch deck with oral narrative: A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest of potential investors in reading the written presentation, i.e., the executive summary and a few key graphs showing financial trends and key decision-making benchmark.
(iii) A written presentation for external stakeholders: A detailed, well written, and pleasingly formatted plan targeted at external stakeholders.
(iv) An internal operational plan: A detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders.
Part – D(25 Marks)
Question 30.
‘Anjali Exports’, a leading export house wants to diversify its business from cotton ladies dress, suits to bed sheets, handicraft items, etc., because of demand in foreign countries. For this she required capital of ₹1 crore. She decided to take this amount as loan from Bank of Baroda for a period of 10 years. In order to avoid any kind of risk, it conducted a market survey to have an edge over the competitors and to maximize its profits, capturing foreign markets.
(i) Identify the type of plan Anjali Exports has to make to analyse her business situation.
(ii) Also explain first three steps in preparing such plan.
Answer:
(i) Anjali Exports has to make a marketing plan for diversification of her business.
(ii) Procedure for preparing the marketing plan involves the following steps:
(a) Business Situation Analysis: This helps in finding out “where we have been”. Existing organizations review past performance and achievements of the enterprise but new ventures focus on:
- Personal profile of the entrepreneur.
- Emphasis on product development.
- What needs it satisfies.
- Any other enterprise/experience of the entrepreneur.
- Any other market segmentation if planned.
(b) Identify the Target Market: Target market refers to the group of customers who will be our potential buyers. Divide the target customers into smaller groups as per consumers characteristics and buying situations and then develop a marketing plan integrating product, price, plan and promotion. For a new venture, it’s very essential to define clearly the specific group of potential customers whose needs the enterprise aims to fulfil.
(c) Conduct SWOT Analysis: The entrepreneur must consider in the target market his enterprise’s:
- Strength
- Weakness
- Opportunities
- Threats
Marketing plan needs to consider the strengths and weaknesses of the new venture to ensure its success.
Question 31.
The School Gear Ltd. manufactures three product – Tiffin covers; Bottle covers; Pencil pouch. The variable expenses and sales prices of all these products are given below:
Tiffin covers | Bottle covers | Pencil pouch | |
Sales price per unit | ₹200 | ₹100 | ₹75 |
Variable cost per unit | ₹100 | ₹60 | ₹25 |
The total fixed expenses of the company are 755,000 per month. For the coming month, it expects the sale of three products in the following proportions:
Tiffin covers: 20%
Bottle covers: 50%
Pencil pouch: 30%
Compute the break-even point of company in units and rupees for the coming month.
Answer:
Contribution Margin per unit for each product:
Product | Tiffin covers | Bottle covers | Pencil pouch |
Sales price @ unit | ₹200 | ₹100 | ₹75 |
Variable cost @ unit | ₹100 | ₹60 | ₹25 |
Thus, contribution margin per unit is calculated.
Now to calculate weighted average contribution margin (CM) per unit = (Tiffin Cover CM × Sales mix percentage) + (Bottle Cover CM × Sales mix percentage) + (Pencil Pouch CM × Sales mix percentage)
= 100 × 20% + 40 × 50% + 50 × 30%
= 20 + 20 + 15 = ₹55
Thus, weighted average CM per unit is ₹55.
Break-even point in Units of sales mix = Total fixed cost/Weighted average CM per units
= \(₹ \frac{55,000}{55}\) = 1,000 units
Product break-even in units:
(i) Tiffin cover – 1,000 × 20% = 200 units
(ii) Bottle cover – 1,000 × 50% = 500 units
(iii) Pencil cover – 1,000 × 30% = 300 units
Product break-even in rupees:
Product units at break-even point × Price per unit
(i) Tiffin cover = 200 units × ₹200 = ₹40,000
(ii) Bottle cover = 500 units × ₹100 = ₹50,000
(iii) Pencil cover = 300 units × ₹75 = ₹22,500
Question 32.
Why is ‘place mix’ regarded as an important element of marketing mix? How does the considerations related to market have an impact on the selection of a distribution channel?
Answer:
It is a distribution network through which the producer puts his products in the market and passes it to the actual users. This channel consists of: producers, consumers or users and the various middlemen like wholesalers, selling agents and retailers (dealers) who intervene between the producers and consumers. Therefore, the channel serves to bridge the gap between the point of production and the point of consumption there by creating time, place and possession utilities.
Considerations related to market are given below:
- Number of buyers: If the number of buyers is large then it is better to take the services of middlemen for the distribution of the goods. On the contrary, the distribution should be done by the manufacturer directly if the number of buyers are less.
- Types of buyers: Buyers can be of two types: General Buyers and Industrial Buyers. If more buyers of the product belong to general category then there can be more middlemen. But in case of industrial buyers there can be fewer middlemen.
- Buying habits: A manufacturer should take the services of middlemen if his/her financial position does not permit him/her to sell goods on credit to those consumers who are in the habit of purchasing goods on credit.
- Buying quantity: It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantities.
- Size of market: If the market area of the product is scattered fairly, then the producer must take the help of middlemen.
OR
“The cost-plus method is simple, but it does not encourage the efficient use of resources.” In the light of this statement, explain the any three advantages and any two disadvantages of cost-plus pricing method.
Answer:
Advantages:
- Easy: This method of pricing is a very simple. It can easily be used for determining the price.
- Flexible: Any changes in the cost of production or in the margin of profit, changes the price in the same direction. It automatically gets adjusted to the change.
- Visible Profit Margin: Profit margin is not to be calculated; it is already fixed. Thus, by multiplying the profit per unit by the volume of the product, the total profit can be determined.
- Increases Efficiency: Any upward rise in cost is easily visible. This provides an idea to the entrepreneur to adjust his production for keeping the cost as low as possible.
- Less Calculation: Comparatively less calculation is involved, which makes the implementation of this method simple.
- Easy Implementation: This method can easily be implemented because of its simplicity to understand and because of easy calculations.
Disadvantages:
- Suitable Only for a Single Product: A firm involved in production of only one type of product finds it convenient. In case the firm decides about variation, then this method cannot be successfully used.
- Could Neglect the Competitive Price: In case the sum of cost price and profit is more than the competitive price, then the sale of the product will be low.
- Consumers preference: It is not considered while fixing the price by this method. This method does not provide much scope for selling a product discriminately to different groups of customers.
Question 33.
Jaishree started a ready-made garments shop for ladies in a residential area where mostly government servants live. Suggest her the ways to make her business a successful one.
Answer:
To make her business successful she should have:
- Adequate industry experience: The internal resources of a firm must match the needs of the environment in which it operates.
- Adequate financing: Proper financing, planning and support opportunities for growth. Entrepreneurs should plan in advance quantity and sources of finance, capital structure, etc.
- Ensure adequate cash flow: Cash flow is the measure of a firm’s, ability to maintain sufficient funding to meet its expenses for the day-to-day activities of business.
- Effective business planning: A good business plan helps to identify the mission, cost structure, market, external influences, strengths and weakness of a business along with plans for operations, marketing, etc.
- Good management competency: Good management efficiently implements and monitors the strategic and operational plan of a business.
- Eye on competitors/Analysis of competitors strategy: Customers are always looking for the best deal or at least a better deal. Keeping an eye on competitors and positioning the products accordingly is vital for staying in the business.
- Realistic Goods: A business should set smart goals balancing its risk taking capacity and optimism.
- Diversifying customer base: Flexibility in operations and openness towards adaptation of new trends and ideas are important for business success.
- Good control system: A lack of proper control on internal activities can lead to business failure.
- Entrepreneur skills: During the startup phase of a new business entrepreneurial skills in an owner is inevitable.
OR
‘An opportunity may be derived from the needs and problem of the society’. Comment.
Answer:
Needs: Society has a variety of needs that are essential for individuals to lead fulfilling lives. These needs can include basic necessities such as food, shelter, clothing, healthcare, and education. They can also encompass broader needs like access to technology, transportation, clean energy, or sustainable practices. Entrepreneurs who identify these needs can develop innovative solutions to meet them, creating value for both themselves and society.
Problems: Society also faces numerous problems or challenges that hinder progress and well being. These problems can range from social issues like poverty, inequality, or discrimination to environmental concerns such as pollution, climate change, or resource scarcity. Additionally, there may be inefficiencies, gaps, or outdated practices in various industries that need to be addressed. Entrepreneurs who understand these problems can devise entrepreneurial ventures that offer solutions and contribute to resolving these issues.
In both cases, whether it’s identifying needs or problems, entrepreneurs play a crucial role in recognizing the gaps or deficiencies and taking action to address them. They possess a unique ability to perceive opportunities within these needs and problems and transform them into viable business ventures. By doing so, they not only create value for themselves by building successful enterprises but also generate positive outcomes for society by offering products, services, or systems that alleviate those needs or solve those problems.
Overall, by understanding the needs and problems of society, entrepreneurs can leverage their skills, knowledge, and resources to provide innovative solutions that have the potential to make a meaningful impact on individuals, communities, and even the world at large.
Question 34.
When an entrepreneur decides to go public and become a public company, he/she tends to be in advantageous positions and get many benefits out of it. Explain any five benefits.
Answer:
When an entrepreneur decides to take their company public and become a public company by offering shares to the public through an initial public offering (IPO) or other means, they can indeed enjoy several advantages and benefits.
Here are some of the key benefits:
Access to Capital: Going public allows the entrepreneur to raise significant capital by selling shares to investors in the public market. This infusion of funds can be used for various purposes such as business expansion, research and development, acquisitions, marketing initiatives, or debt repayment. The increased capital base provides financial flexibility and enables the company to pursue growth opportunities that may have been otherwise unattainable.
Increased Visibility and Prestige: Public companies often gain increased visibility and recognition in the market. Being listed on a stock exchange or trading platform can enhance the company’s reputation and credibility among customers, suppliers, and other stakeholders. The public status can also attract media attention, potentially leading to greater brand awareness and market exposure.
Liquidity and Exit Strategy: Going public provides an opportunity for the entrepreneur and early investors to monetise their ownership stakes. By selling shares on the public market, they can access liquidity, allowing them to realize the value they have built in the company. This liquidity option can serve as an exit strategy for early investors or enable the entrepreneur to diversify their personal wealth.
Valuation and Investor Confidence: Public companies are subject to market valuation based on their stock price, which reflects the perceived value of the company by investors. A higher valuation can enhance the company’s financial position, facilitate future fund raising efforts, and provide a currency for potential acquisitions or partnerships. Moreover, being a public company with regular reporting obligations can in still investor confidence, as it signifies transparency and accountability.
Employee Incentives: Going public can enable the implementation of employee stock option plans or equity-based compensation programs. This can be a powerful tool to attract and retain talented employees by providing them with ownership stakes or the potential to participate in the company’s success through stock-based rewards. Employee incentives tied to the company’s stock performance aligns the interests of employees with the long-term goals of the company.
Acquisition Currency: Being a public company can enhance the company’s ability to make acquisitions by using its publicly traded shares as a form of currency. The shares can be used as consideration in mergers and acquisitions, allowing the company to expand its operations, enter new markets, or gain access to strategic assets. This can be a valuable growth strategy for the entrepreneur to consolidate the industry or diversify the company’s offerings.