Students can access the CBSE Sample Papers for Class 12 Entrepreneurship with Solutions and marking scheme Set 2 will help students in understanding the difficulty level of the exam.
CBSE Sample Papers for Class 12 Entrepreneurship Set 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.
In the drive to make the world ‘plastic free’, Aru designed a machine to convert single-use plastic into very small granules that could be used for making low-cost roads. Her machine worked with the help of solar energy. She put her idea before the venture capitalists by making an entertaining slide show and oral narration. She also presented the executive summary of her proposed venture and a few key graphs. The format of business plan used by Aru is:
(A) Elevator pitch
(B) A pitch deck with oral narrative
(C) A written presentation for external stakeholders
(D) An internal operational plan
Answer:
(B) A pitch deck with oral narrative
Explanation: A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest among 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.
Question 2.
Assertion (A): An entrepreneur should be a keen listener. He has to create a culture of listening to people.
Reason (R): By this, he will be able to find out the taste, preferences, needs and problems of the people around him.
(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: As a risk-taker, an entrepreneur should be keen and have open mind to look for opportunities and generate business ideas. He should be a keen listener. He has to create a culture of listening to people so that he will be able to find out the taste, preferences, needs and problems of the people around him. By his keen interest and alertness, he can control business ventures and face the competition present in the market and ensure that any threats will not cause any problem to the enterprise.
Question 3.
What is a business plan?
(i) It is a comprehensive document.
(ii) It is a written down document.
(iii) It is a road map required by the venture.
(iv) It is a formal statement of a set of business goals to be achieved by the enterprise.
(A) (i) only
(B) (ii), (iii)
(C) (i), (ii)
(D) (i), (ii), (iii) (iv)
Answer:
(D) (i), (ii), (iii) (iv)
Explanation: A business plan is a comprehensively written down document prepared by the entrepreneur describing formally all the relevant external and internal elements involved in startng a new venture. It is a road map required by the venture to evolve from an early start up to a mature business.
Question 4.
“Aggressive entry of Reliance Jio has launched a big price war. With its free services, Jio has upset the bigger players. The Vodafone-Idea merged entity will only add fuel to the fire. Since the merged entity will have more resources, the telecom price war is going to get messier. Idea-Vodafone merger may lead to more consolidation. Reliance Communications, Tata Teleservices and Airtel are already in talks for merger. Airtel has bought India operations of Telenor. Reliance is surely going to face stiff fight from the new biggies. The consumer will be the king.” Identify the type of merger stated in the above article.
(A) Horizontal merger
(B) Vertical merger
(C) Conglomerate merger
(D) None of these
Answer:
(A) Horizontal merger
Explanation: A merger occurring between companies in the same industry is called horizontal merger.
Question 5.
ABC Apparel is a clothing manufacturer that wants to introduce a new line of trendy clothing targeting the youth market. They aim to quickly capture a significant market share.
Scenario: ABC Apparel recognizes that the youth market is highly price-sensitive and competitive. The company wants to adopt a pricing strategy that allows them to penetrate the market swiftly and attract a large customer base.
Which pricing method should ABC Apparel employ to gain a substantial market share quickly?
(A) Cost plus pricing
(B) Penetration pricing
(C) Skimming pricing
(D) Variable pricing
Answer:
(B) Penetration pricing
Explanation: ABC Apparel should consider penetration pricing for their new line of trendy clothing. Penetration pricing involves setting an initially low price to enter the market and gain a significant market share quickly. By offering an attractive price, ABC Apparel can encourage trial and adoption among price-sensitive youth customers. This strategy allows them to capture market share, create brand awareness, and establish a customer base before gradually increasing the prices or introducing new product offerings.
Question 6.
Assertion (A): The organisational plan helps to ensure long-term effectiveness of the enterprise.
Reason (R): The organisational plan helps the entrepreneur to carefully evaluate and decide the legal structure for his organization.
(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).
Question 7.
Both mergers and acquisitions are enterprise growth strategies but how they come into existence makes them different from each other. Which of the given statements below 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 depending 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: In a merger, two companies agree to combine their operations and form a new entity. It is a consensual process where both companies mutually decide to merge. On the other hand, in an acquisition, one company acquires another company, often against the will or without the consent of the target company’s management or shareholders. It can be seen as a forced transaction where one company takes control over another.
Question 8.
Ramsaran, an auto-mechanic, was working in a city. But due to ill health of his parents he was compelled to shift to his village. The village was approximately two kilometers away from the nearest highway. He noticed that vehicles which broke down had no repair facility in that area. This gave him an idea to open an ‘Auto-Service Centre’ for earning his livelihood. He motivated some young boys of his village to join him for providing this service. He trained them and employed them in his workshop. The process which helped Ramsaran in converting an idea into an opportunity is:
(A) Sensing entrepreneurial opportunities
(B) Environment scanning
(C) Problem identification
(D) Spotting trends
Answer:
(A) Sensing entrepreneurial opportunities
Explanation: A prospective entrepreneur has to find an opportunity which would be suitable for him/her in terms of customers to be served and profits expected. An opportunity may be derived from the needs and problems of the society. Sensing entrepreneurial opportunities is thus a process of converting an idea into an opportunity and then into an enterprise.
Question 9.
Arun and Rukun are good friends. After doing a fashion designing course from a reputed institute, they have set up a garment factory in the rural area of Faridabad to manufacture trendy casual wear like jeans, T-shirts, shirts, etc. under the brand name ‘Swatantra’. They have employed people from the nearby villages itself in the factory. Moreover, they wish to sell the products through local retailers in the villages and also through ‘Flipkart’.
In the context of above case:
Identify the elements of marketing mix being taken into consideration by Arun and Rukun.
(i) Product
(ii) Price
(iii) Place
(iv) Promotion
(A) (i) only
(B) (iii) only
(C) (ii) and (iv) only
(D) (i) and (iii) only
Answer:
(D) (i) and (iii) only
Question 10.
Balwant Singh of Bikaner thought of air-conditioned houses which do not require electricity. He wanted to explore the idea of construction of such eco-friendly houses which will remain cool in summers and warm in winters. He conceived the idea in 2016 but the final product could take shape in 2020. Identify the stage of creative process mentioned here.
(A) Idea germination
(B) Preparation
(C) Incubation
(D) Illumination
Answer:
(A) Idea germination
Explanation: Idea germination is the seeding stage of a new idea. It is the stage where the entrepreneur recognizes that an opportunity.
Question 11.
Siya Furnitures Ltd. set up a small manufacturing unit in the local market of their city. The quality of their furniture is the best in the whole market. After some time, Motilal Furnitures Ltd. planned to join hands with Siya Furnitures Ltd., in a view that this deal will help them to obtain a better pricing and control over the manufacturing process. This type of growth strategy is known as _____.
(A) Product Extension Merger
(B) Vertical Merger
(C) Horizontal Merger
(D) Market Extension Merger
Answer:
(B) Vertical Merger
Explanation: A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations.
Question 12.
Vishal was working with Abhinav, a new entrepreneur, as a Production Manager. For smooth and coordinated flow of work he had to pay attention towards various elements. To ensure predetermined quality of products, he had to compare the performance with established standards. They are discussing about which of the following component of Business plan:
(i) Organisational plan
(ii) Production plan
(iii) Operational plan
(iv) Human resource plan
(A) (i), (ii)
(B) (ii) only
(C) (iii), (iv)
(D) (i),(iv)
Answer:
(B) (ii) only
Explanation: Production, the most important activity of an enterprise, because it is here that transformation of raw material into finished product takes place with the help of energy, capital, manpower and machinery. Picturing ahead every step in a long series of separate operations, each step to be taken in the right place of the right degree, and at the right time and each operation to be done at maximum efficiency is the objective of a production plan.
Question 13.
_____ is required to meet day-to-day expenses and to facilitate smooth functioning of the business.
(A) Fixed capital
(B) Working Capital
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(B) Working Capital
Question 14.
A factory is engaged in manufacturing shirts. The following information is available. What will be the quantity to be sold at Break-Even Point?
Sales – ₹40,000
Direct Labour Cost (2,000 units) – ₹40,000
Direct Material Cost (2,000 units) – ₹1,00,000
Direct Expenses (2,000 units) – ₹20,000
Fixed Cost – ₹1,20,000
(A) 1,200 units
(B) 1,000 units
(C) 3,000 units
(D) 2,000 units
Answer:
(B) 1,000 units
Question 15.
Assertion (A): Venture capital is an equity-based investment.
Reason (R): Venture capital has been used as a tool for economic development in a variety of developing regions.
(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: Venture capital is an equity-based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for minority share holding in the business or the irrevocable right to acquire.
Question 16.
Monik Ltd., was the market leader in the mobile phone industry in 2000. The company was well known for it’s affordable phones. In 2007, a new company launched new mobile models with latest technologies and captured the market. Monik Ltd., did not expect this and lost the entire market share and had to close their operations. Which of the following SWOT analysis frame work does this case indicate that Monik Ltd. failed to do?
(A) Strengths
(B) Weakness
(C) Opportunities
(D) Threats
Answer:
(D) Threats
Explanation: A new company entered the market in 2007 with new mobile models featuring the latest technologies. It created a threat for Monik Ltd. The new company’s products captured the market, indicating that Monik Ltd. failed to recognize and respond effectively to the threat posed by the competition. This lack of awareness and inability to address the changing market dynamics suggests that Monik Ltd. did not adequately consider the Threats aspect of the SWOT analysis.
Question 17.
Why are capital markets important for entrepreneurs?
(A) Mobilise the financial resources.
(B) Secure the required foreign capital.
(C) Ensure the most effective allocation of the mobilized financial resources.
(D) All of the above
Answer:
(D) All of the above
Question 18.
Rohan, a qualified certified entrepreneur, decided to start a company providing communication services. It was like a dream for him. For him it was a first time to manage a company so he has a fear of involving high risk. However, he lacked the necessary funds and experience to give shape to his idea. He knew that if he failed to get investment from the public, his dream will not turn into reality. So, he made a detailed business plan and presented his idea to a company which is run by a group of professional investors. They were impressed by his business plan and decided to fund his start-up in exchange for an equity stake in the business. The source of finance used by Rohan is:
(A) Angel investor
(B) Venture capitalist
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(B) Venture capitalist
Explanation: Venture capital (VC) is a form of private equity with the type of financing offered by investors in start-up companies and small businesses that are believed to have the potential for long-term growth. Venture funding usually comes from well off investors, investment banks, and other financial institutions.
Part – B(12 Marks)
Question 19.
Write any two steps by which creativity can be designed into an enterprise?
Answer:
Creativity can be designed into an enterprise by the following steps:
(i) Having open channels of communication and allowing contacts with outside world promotes creativity.
(ii) Using teams for solving the problems is more likely to yield creative solutions.
(iii) Decentralised organisational structure with loosely defined positions and loose controls are more creative.
(iv) Playful culture, freedom to discuss ideas and long-term horizon of an enterprise promotes creativity.
(v) Enterprise is made creative when resources are allocated to creative personnel without caring for payoff.
OR
Why does a study of the environmental factors become important for an entrepreneur? Explain briefly.
Answer:
Study of environmental factors becomes important for an entrepreneur because it helps to develop an understanding of social, economic, political and other developmental factors in order to ensure that perceived entrepreneurial opportunities are compatible with them.
Question 20.
‘Pure Neer India Ltd.’ is a manufacturer of water purifiers. The company has developed a new water purifier that not only converts the hard water into soft water but also kills the bacteria and other harmful microorganisms present in it. The company has named this water purifier as ‘Nirmal Neer’ and for its marketing appointed salesmen throughout the country. The company also trained the salesmen to provide information about the usefulness of the ‘Nirmal Neer’ water purifiers to the customers and motivate them to buy the same.
(i) Name and explain the type of promotional tool adopted by the company.
(ii) Also identify the channel of distribution used by the company.
Answer:
(i) Personal selling: It 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. Companies appoint salesperson to contact prospective buyers and create awareness about the company’s product.
(ii) Direct channel/zero level of distribution.
Question 21.
‘Sultan Trucks Ltd.’ are the manufacturers of commercial trucks for the last 20 years. The company has been doing good business but recently due to irregularity of supply of parts from the supplier, the company could not make timely delivery of trucks to the parties who had booked their trucks. The customers cancelled their bookings and there were very few new bookings. The sales of the company started declining that resulted into losses. The management of the company analysed the problem and decided to take over those two firms because of whom the problem arose, one of them was supplying tyres for the trucks and other axles to the company. The company also extended credit facilities to the customers and started booking trucks without charging any booking amount. It also decided to employ 100 unemployed youth with 50% reservation for women to take up the cleaning process, using the imported machines, inside the factory as well as the surrounding areas. Identify and explain the concept of growth strategies discussed in the above para.
Answer:
The concept of growth strategy discussed here is acquisition. It is a corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company’s stock or a combination of both. An acquisition, also known as a takeover, is the buying of one company (the target) by another.
Question 22.
Give the meaning of ‘Business situation analyses’ and ‘Identification of target market’ as steps in preparing the marketing plan.
Answer:
(i) Business situation analysis: Involves a review of past performance and achievements of the enterprise including personal profile of the entrepreneur, product development, the consumer needs satisfied, etc.
(ii) Identification of target market: It involves defining clearly the specific group of potential customers whose needs the enterprise aims to fulfil.
OR
What are the key areas to work on a sound financial plan? State any four.
Answer:
Following are the key areas to work on a sound financial plan:
- Financial requirements
- Sources of raising funds
- Investment of funds in different assets
- Exact assessment of revenue, cost, profits, stock, etc.
- The amount of cash flows
- Socio-economic benefits expected from proposed investment.
Question 23.
Categorize the following environment forces as Micro and Macro environmental forces.
Suppliers, Lifestyle, Laws and Legislations, General public, Competitors, Technology, Political parties, Foreign exchange rate.
Answer:
Micro Suppliers, General public, Competitors Macro-Lifestyle (Social), Law and legislations (Legal), Technology (Technological), Political parties (Political) and Foreign exchange rate (Economic).
Question 24.
‘H.L. Chemist’ sells medicines at a discount of 5% on list price. On 1.3.2017 medicines as per the details given below were sold by ‘H.L. Chemist’.
| No. of customers | Per customer billed amount ₹ |
| 50 | 340 |
| 45 | 370 |
| 35 | 650 |
| 30 | 800 |
| 25 | 975 |
Calculate the average amount of medicines sold per customer.
Answer:
Average amount of medicines sold per customer:
Total Billed amount
Number of customers
| No. of customers | Av. Amount billed per customer | Total amount |
| 50 | 340 | 17,000 |
| 45 | 370 | 16,650 |
| 35 | 650 | 22,750 |
| 30 | 800 | 24,000 |
| 25 | 975 | 24,375 |
| 185 | 1,04,775 |
\(\frac{1,04,775}{185}\) = 566.35
OR
200 brooms are proposed to be produced per week by a firm and for that ₹2,000 are needed for raw materials, ₹1,000 for wages and other changes. If it takes three weeks to receive the payments on the sales, then calculate working capital.
Answer:
The money spent during the first week comes only at the end of fourth week.
Working capital is needed for four weeks.
Working capital = (₹2,000 + 1,000) × 4 weeks
= ₹3,000 × 4
Part – C(15 Marks)
Question 25.
Name and explain the three stages included in early-stage financing.
Answer:
Early-stage financing includes:
Seed capital: It refers to the capital required by an entrepreneur for conducting research at pre commercialisation stage. During this stage, the entrepreneur has to convince the investor (VC) why his idea/product is worthwhile. Entrepreneur’s ability, technological skills and competencies are required to match with the market opportunities so as to successfully convince about product/idea’s feasibility to the venture capitalist.
Pre-start up and start up: If the idea/product/process is qualified for further investigation and/or investment, the process will go to the second stage; this is also called the start-up stage. A business plan is presented by the entrepreneur to the VC firm. The management team establishes a feasible production line to produce the product. The VC firm monitors the feasibility of the product and the capability of the management-team from the board of directors.
Second round financing: At this stage, we presume that the idea has been transformed into a product and is being produced and sold. As this time, larger funds than the other early stage financing are required, entrepreneur should be extra careful because only if he and his management team is able to prove their capability of standing against the competition, only then is the VC firm interested in financing.
OR
What are the additional obligations and reporting requirements of going public?
Answer:
Some of the additional obligations and reporting requirements of going public are:
- Increasing accountability to public shareholders.
- Need to maintain dividend and profit growth trends.
- Becoming more vulnerable to an unwelcome takeover.
- Need to observe and adhere strictly to the rules and regulations by governing bodies.
- Increasing cost in complying with higher level of reporting requirements.
- Relinquishing some control of the company following the public offering.
- Suffering a loss of privacy as a result of media interest.
Question 26.
Two years back Naresh, started a small business of manufacturing ethnic shoes under the brand name Mocharies (footwear) in one of the backward areas of Rajasthan. He is having more than 10 employees who are the local artisans, for this work. He has also employed two sales agents to deliver the goods in nearby urban areas. He got very good response for his ethnic and attractive shoes, Mocharies. Excited by the response he expanded his business in other states also. He opened more branches in his local area and also gave franchise to new enterprise Messers Ram & Sons, a footwear manufacturing company to use this brand name to sell its product in the market.
He signed a franchise agreement. Out of the royalty so received, he organised a training programme, for the employees of manufacturing department of his franchisee and also conducted advertising for his branded shoes. Explain any three main ingredients of franchise agreement.
Answer:
The main ingredients of a franchise agreement:
Contract Explanation: The contract explanation is the part of the agreement that outlines the type of relationship a franchisee is entering into with the franchisor.
Operations Manual: The operations manual is the section of the agreement that details the guidelines that the franchisee must legally follow in operating the business as outlined by the franchisor. From time-to-time amendments may be made and the franchisee must be prepared to adjust operations accordingly. The franchisee needs to be aware that the contents of the document are confidential.
Proprietary Statements: Proprietary statements outline how the franchise name is to be used, as well as the marketing and advertising procedures in place that the franchisee will be required to follow. Also, the franchisor documents how much the franchisee will be required to contribute towards national advertising efforts.
Ongoing Site Maintenance: Ongoing site maintenance is another item that is outlined in the agreement. Included are the types and time frames regarding various maintenance items and upgrades that must be made to the franchisee’s location.
Question 27.
“An old marketing adage says that nothing happens until someone buys something in short, sales drive every aspect of business. In every company, the salespeople are the front-line troops. In the rough-and-tumble of the marketplace, the slickest manufacturing processes, the shrewdest marketing, the brightest corporate reputations won’t make the sale without the face-to-face (at least usually) meeting of seller and buyer.”
(i) Identify and explain the tool of promotion stated in the above article.
(ii) Explain any one more tool of promotion mix other than the specified above in (i).
Answer:
Personal Selling: It involves oral presentation of message in the form of conversation with one or more prospective customers for the purpose of making sales. Companies appoint sales person to contact prospective buyers and create awareness about the company’s product.
Other tools of Promotion:
(i) Sales Promotion: Sales promotion refers to the short-term incentives, other than advertising and personal selling which are designed to encourage the buyers to make immediate purchase of a product or service.
(ii) Advertising: Advertising refers to any paid form of non-personal presentation and promotion of goods and services by an identified sponsor to make people aware about the goods and services.
(iii) Public Relations: It involves variety of activities designed to promote or protect company’s image and its individual products in the eyes of public. It is the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation (and individual) and its (or their) public.
Question 28.
Manish wants to start a small toy manufacturing factory. As a part of his business plan, he prepared an ‘entertaining slide show and oral narrative’ to trigger discussion and create interest in potential investors for reading the written presentation. Explain the formats available to design a successful business plan.
(i) Identify and explain the format of business plan referred above.
(ii) Explain briefly any other format of business plan.
Answer:
(i) Elevator Pitch: It is a three-minute summary of the business plan’s executive. This is often used as a teaser to awaken the interest of potential funds, customers or strategic partners.
(ii) Other formats of a business plan:
(a) A Pitch Deck with Oral Narrative: A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest 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.
(b) A Written Presentation for External Stakeholders: A detailed well written and pleasingly formatted plan targeted at external stake holders.
(c) An Internal Operational Plan: A detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders.
Question 29.
“For a viable venture to be born, an entrepreneur is required to apply his knowledge, skill, creativity, strategically to market”. Why is this strategic positioning required?
Answer:
Strategic positioning is vital for a viable venture as it allows entrepreneurs to differentiate their business from competitors and effectively target specific market segments. By leveraging their knowledge, skills, and creativity, entrepreneurs can create a unique selling proposition that sets them apart. This positioning helps them gain a competitive advantage by identifying untapped opportunities and developing strategies that cater to evolving customer needs.
Additionally, strategic positioning enables efficient resource allocation, maximizes returns on investment, and supports long-term sustainability. It also contributes to brand building, customer acquisition, and market expansion, while attracting potential investors by demonstrating a clear understanding of the market and growth potential. Overall, strategic positioning plays a crucial role in the success and viability of a venture by aligning it with market dynamics and enhancing its competitiveness.
OR
‘An idea that is not assessed for its opportunity potential may fail in business.’ Comment on this statement with appropriate examples.
Answer:
Earlier people used to believe that entrepreneurs are born, not made but now the concept has totally changed. An idea that is not assessed for its opportunity potential may fail in business. For example, an NRI on the advice of his friends launched an herbal farm by investing huge amount for the purchase of agricultural land and developed irrigation system. But the venture was an early disaster. The reason was that the entrepreneur was unsuccessful in fulfilling the requirement of the purchasers due to delayed deliveries. This venture folded up in a very short time.
Part – D(25 Marks)
Question 30.
‘Hi-Fi Company is the manufacturer of school uniforms. Their main items were Shirts, Pants and Socks. Fixed cost of production was ₹1,53,600. Sales price and variable cost per unit were as follows:
| Shirts(₹) | Trousers(₹) | Socks(₹) | |
| Sales Price | 126 | 216 | 90 |
| Variable Cost | 84 | 114 | 54 |
Sales mix percentage of the three products was 20%, 60% and 20% respectively. Find out the Break Even Point in units and rupees.
Answer:
Weighted Average CM per unit ₹76.8
Break-even points in units of sales mix = Total fixed cost ÷ Weighted CM per unit
Total fixed cost = ₹1,53,600
Break-even point (in units) = \(\frac{₹ 1,53,600}{76.8}\)
÷ weighted Average CM per units = ₹1,53,600
Break-even point in unit of sales mix = ₹2,000
Number of units of products break-even point
| Product | Shirts | Trousers | Socks |
| Sales mix ratio × Total break-even units |
20% 2,000 |
60% 2,000 |
20% 2,000 |
| Product units at breakeven point | 400 | 1200 | 400 |
Break-even points in rupees
| Product | Shirts | Trousers | Socks |
| Product units at breakeven point × price per unit |
400 × ₹126 |
1200 × ₹216 |
400 × ₹90 |
| Breakeven point in ₹ | 50,400 | 2,59,200 | 36,000 |
Break-even point in Rupees: = ₹3,45,600
Question 31.
Mohan, Sahil, Arjun and Ashok were childhood friends. All of them were well settled and had good earnings. They were creative and innovative and wanted to start a business. Mohan and Arjun gave an idea to manufacture an electronic machine which would help a lot of households in doing their work. Sahil and Ashok agreed to it, but they were short of capital. They estimated that approximately ₹5 crores would be required to finance the project. They also wanted that their private properties should not be used to pay off the liabilities of the
business.
(i) Considering the above facts suggest the suitable ‘type of business organisation’ to be formed.
(ii) State any two features of the suggested type of business organisation, including the one stated in the above para.
(iii) List any two privileges of this type of business organisation.
Answer:
(i) Private Ltd. Company (Joint Stock Company)
(ii) Features of private limited company are:
(a) Has a minimum of 2 and maximum of 50 members excluding its part and present employees.
(b) Restrict the right of its members to transfer shares.
(c) Prohibits an invitation to the parties to subscribe for any shares in or debentures of the company, or accepts any deposits from persons other than its directors, members or relatives.
(d) Minimum paid-up capital of ₹1.00 lakh
(e) Uses the word ‘Pvt. Ltd.’ at the end of its name.
(iii) Privileges of this business angulation are:
(a) It is not compulsory for a private company to maintain index of its members.
(b) It is also not compulsory for a private company to hold a statutory meeting and file a statutory report with the Registrar, whereas it is essential for a public company.
(c) Private company can commence its business after getting certificate of registration whereas public company can start business only after receiving the certificate for the commencement of business.
(d) It is not necessary for a private company to issue a prospectus, whereas it is mandatory for a public company.
Question 32.
What is meant by primary market? Briefly explain the concept of “Right Issue for existing companies and Offer to the employees”.
Answer:
Primary market is basically meant to facilitate transfer of resources from the savers to the entrepreneurs seeking funds for:
(i) Setting new enterprises
(ii) Expansion and modernization
(iii) Diversification
Right Issue: Right Issue is a method of raising additional finance from existing shareholders by offering securities to them on pro-rata basis i.e., giving them a right to a certain number of shares in proportion to the shares they are holding. It is proposed through a circular to all the existing shareholders only. It is not mandatory to purchase these shares if any shareholder is not willing to subscribe. They can reject or disclaim and others can subscribe to it.
Offer to employees: Stock options or offering shares to the employees has gained much popularity in many countries of the world. This method enables employees to become shareholders and share the profits of the company leading to:
(i) Higher efficiency
(ii) Low labour turnover
(iii) Better industrial locations
(iv) Low floatation cost
(v) Wider/higher generation of funds
OR
Explain the concept of Return on Equity (ROE). How is it calculated?
Answer:
ROE measures the profitability of the company from common stockholder’s (Equity shareholder’s) point of view. This is calculated to find out how efficiently the funds supplied by equity shareholders have been used. It is the expectation of high return that motivates equity shareholders to continue with the company and the new investors to put their money in company’s share. It is computed by dividing net income available for equity shareholders by average equity shareholders’ fund. When preference shareholders are present, the preference dividends are deducted from net income to compute income available for equity stockholders.
ROE = Net profit after tax – Preference dividend /Equity shareholder’s fund × 100
Higher is the ratio, the more efficient the management and utilization of equity shareholders’ fund. The return on equity may be substantially higher than its return on assets due to trading on equity.
Question 33.
“Skimming is usually employed to reimburse the cost of investment of the original research into the product. This strategy is often used to target early adopters of a product or service.” Analyze the statement by explaining any two advantages and disadvantages of skimming method.
Answer:
Selling a product at a high price, sacrificing high sales to gain a high profit is “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.
Advantages of skimming price:
(i) Price skimming helps the company in recovering the research and development costs which are associated with the development of a new product.
(ii) If the company caters to consumers who are quality conscious rather than price conscious, then this type of strategy can work in a great way for a company.
Disadvantages of skimming price:
(i) This strategy can backfire if there are close competitors and they also introduce same products at lower prices then consumers will think that the company always sell the products at higher prices which will result in consumers abandoning other product of the company also.
(ii) Price skimming is not a viable option when there are strict legal and government regulations regarding consumer rights.
(iii) If the company has history of price skimming, then consumers will never buy a product when it is newly launched, they would rather wait for a few months and buy the product at lower price.
Question 34.
‘The process of ‘generation of ideas’ can be streamlined by developing an awareness about it and these work as the convenient frames of references for this.
(i) Identify the concept stated in the above para.
(ii) Explain any four sources of the concept identified which are used by an entrepreneur.
Answer:
(i) Idea fields
(ii) (a) Natural resources: Ideas can be generated based on natural resources. A product or service may be desired from forest resources, agriculture, horticulture, mineral, animal husbandry, wind, sun, and human resources.
(b) Existing products or services: A business opportunity or idea often comes from everyday problems that someone solves. Successful businesses find a need and fill it by providing a service or a product. Entrepreneurs who look at ways to make an existing product or service better can be as successful as those who create or invent products.
(c) Market driven or demand driven market research: It is an organized effort to gather information about target markets or customers. Ideas can be generated based on existing demand in the market. It is a very important component of business strategy.
(d) Trading related: Trade is buying goods and services and selling them to consumers at a profit. One big advantage that trading has over other types of businesses is that it is easier to launch and it is also less risky. It is however, necessary for a prospective trader to be aware of the trends in an economy.
(e) Service sector: Service sector is the most growing field these days due to emerging knowledge societies and advances in Information and Technology. So new opportunities can be identified by understanding the linkages to different business activities.
(f) Creative efforts: There are basically five ways in which creative ideas can be generated:
- Develop a new product or service.
- Improve an existing product or service.
- Find a new process or resource for manufacturing a product.
- Find new markets for existing products or services.
- Find a new use for a product or service.
OR
Entrepreneurs does not emerge and grow spontaneously, rather it is dependent upon several environmental factors. Explain any five of those factors.
Answer:
Entrepreneurship does not occur in isolation but is influenced by various environmental factors. These factors create the conditions and opportunities for entrepreneurs to emerge and grow their ventures.
Here are some key environmental factors that impact entrepreneurship:
Economic Factors: The economic conditions of a region or country has a significant influence on entrepreneurship. Factors such as GDP growth, market demand, access to capital and financing, inflation rates, and overall economic stability affects the opportunities and risks associated with starting and running a business. Favourable economic conditions can encourage entrepreneurship by providing a strong consumer base, investment opportunities, and market growth potential.
Political Factors: The political environment plays a crucial role in shaping entrepreneurship. Stable political conditions, supportive government policies, and regulations that encourage business growth and innovation are essential for entrepreneurial success. Political stability, ease of doing business, transparency in governance, and a favourable business climate contribute to an environment where entrepreneurs can thrive.
Legal and Regulatory Factors: The legal and regulatory framework in a particular jurisdiction influences entrepreneurship. Entrepreneurial activities are affected by factors such as business registration processes, taxation policies, intellectual property protection, contract enforcement, and labour laws. Favourable regulations that promote fair competition, protect intellectual property rights, and reduced administrative burdens can foster entrepreneurship and attract investment.
Social and Cultural Factors: Social and cultural factors play a significant role in shaping entrepreneurial activities. Factors such as social attitudes towards entrepreneurship, cultural norms, education levels, access to networks and mentorship, and social support systems impact the willingness and motivation of individuals to become entrepreneurs. Supportive social and cultural environments that value risk-taking, innovation, and entrepreneurship can provide a fertile ground for entrepreneurial growth.
Technological Factors: Technological advancements and innovation have a profound impact on entrepreneurship. The availability of modern technologies, digital infrastructure, and advancements in communication enable entrepreneurs to develop new business models, reach wider markets, and tap into emerging trends. Technological factors influence the opportunities for innovation, market disruptions, and the potential for scaling ventures rapidly.
Environmental Factors: Environmental considerations, such as sustainability, resource availability, and climate change, are becoming increasingly important for entrepreneurship. Entrepreneurs are recognizing the need for environment-friendly practices and sustainable
business models. Factors like access to renewable energy sources, waste management systems, and ecological conservation policies can create opportunities and shape the growth of environmentally conscious businesses.
These environmental factors collectively shape the entrepreneurial ecosystem and influence the emergence and growth of entrepreneurs. Understanding and leveraging these factors can help individuals and policy-makers create an environment that fosters entrepreneurship and drives economic growth.