Students can access the CBSE Sample Papers for Class 12 Entrepreneurship with Solutions and marking scheme Set 3 will help students in understanding the difficulty level of the exam.
CBSE Sample Papers for Class 12 Entrepreneurship Set 3 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.
Ram was in the process of making operational plan for the production of new phones in his organisation. He was on the step of fixation of time, day, date when each operation is to be commenced and completed. On which stage of operational planning is he currently on?
(A) Routing
(B) Scheduling
(C) Dispatching
(D) Follow-up
Answer:
(B) Scheduling
Explanation: Scheduling is the determination of the time that should be required to perform each operation. It involves fixing the time, date and day of each operation.
Question 2.
Mallika was selling vegetables in her cart along with her mother. They were able to earn a profit of around ₹200 every day. Even though the amount was not substantial it was sufficient for a decent living. Mallika often noticed that nuclear families where both husband and wife go to work find it difficult to cook as cleaning and cutting vegetables took a lot of time, so as an entrepreneur she started gathering information regularly and developed a new product line of selling cut vegetables in hygienic packaging. Mallika used which of the following trend to spot this idea.
(A) Watch trends
(B) Think trends
(C) Read Trends
(D) None of these
Answer:
(B) Think trends
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 3.
Bob, Panny, Honey and Lily were childhood friends. They studied together till class XII. Bob and Panny became doctors and Honey and Lilly became Engineers. All of them had good earnings. They were creative and innovative and wanted to start a business. Bob and Panny gave an idea to manufacture a machine which would help the surgeons in doing surgery without much blood loss. Honey and Lily agreed to it, but they were short of capital. They estimated that approximately ₹2 crores would be required to finance the project, which would be collected by them from their friends and relatives. Which of the following form of business organisation is mentioned here:
(i) Sole proprietorship
(ii) Partnership
(iii) Company
(iv) None of these
(A) (i) only
(B) (ii) only
(C) (i), (iii)
(D) (ii), (iii)
Answer:
(B) (ii) only
Explanation: A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. The objective of the business is to make profits and distribute the same amongst partners. Any association initiated to do charity work is not partnership. The relation of partnership arises from contract and not from status. Though oral agreement is even acceptable but in practice written agreement is much more advisable as disputes can be resolved better with it.
Question 4.
Assertion (A): The sole proprietor has limited liability.
Reason (R): Sole proprietorship form of business is suitable when capital requirement is limited, confidentiality or secrecy is important and size of the venture is small.
(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:
(D) (A) is wrong, but (R) is correct.
Explanation: In sole proprietorship business, the sole owner has unlimited liability. Unlimited liability means that in case the enterprise incurs losses, the private property of the proprietor can also be utilized for meeting the business obligations to outside parties. In this case, the owner is himself liable to pay all the liabilities. If he takes a loan for its business then he will be liable for all the debts. Hence, he is personally liable for all the debts which can be recovered from his personal estate when funds are insufficient.
Question 5.
In which of the following stage of venture capital finance an entrepreneur presume that the idea has been transformed into a product and is being produced and sold:
(A) Seed capital finance
(B) Start up finance
(C) Second round financing
(D) Pre-public stage
Answer:
(C) Second round financing
Explanation: Second round financing it means that the entrepreneur presumes their idea has been transformed into a product and is being produced and sold during the second round of financing. At this stage, the business has already gone through the initial start-up phase, has gained some traction in the market, and is seeking additional funding to further scale and expand its operations.
Question 6.
Vipul a new generation high tech farmer is involved in organic farming. He realised that there was a huge market for his fruits and vegetable as people have become health conscious and prefer to eat healthy food. Keeping this in mind, he decided to open organic fruit juice comer outside central parks and in prominent malls in Jaipur. Now he needed, a ‘road map’ for himself to start the venture. Identify the term used for ‘road map’ by Vipul.
(A) Form of organisation
(B) Human resource
(C) Market Scope
(D) Business plan
Answer:
(D) Business plan
Explanation: Business plan is a comprehensively written down document prepared by the entrepreneur describing formally all the relevant external and internal elements involved in starting a new venture. The entrepreneur must make some important decisions and gather information about the external and internal factors. This is possible only if the entrepreneur is capable of effectively planning where he/she is, and where he/she would like to be and how? Some kind of a ‘game plan’ or a ‘road map’ is required to let the venture evolve from an early start-up to a mature business.
Question 7.
Ankur, an entrepreneur, introduced a new shampoo which will help in reducing hair fall. Inspite of heavy advertisement and publicity he is not able to boost the sales. Which of the following tool will help to boost the sales:
(A) Free Samples
(B) Rebate/Discount
(C) Coupons
(D) All of the above
Answer:
(D) All of the above
Question 8.
During Christmas, cakes are in high demand. Himanshi, a budding entrepreneur, is looking to make her Christmas cakes stand out and attract a wider customer base. She thought to concentrate on the packaging of the cake and make it very creative so that it would create the interest of her existing customers as well as attract new customers. Identify the element of product mix she is more focused on.
(A) Branding
(B) Packaging
(C) Labelling
(D) None of these
Answer:
(B) Packaging
Explanation: Himanshi, the budding entrepreneur, is focusing on the element of product mix known as packaging. Packaging refers to the physical appearance and presentation of a product, including the materials used, design, and overall aesthetics.
Question 9.
Assertion (A): Like a human being a company can buy, sell and own property, sue others, be sued by others.
Reason (R): A company is an artificial person created by the law.
(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 company is created by law. Though, it has no body and no conscience, it still exists as a person, having a distinct personality of its own. Because like a human being it can buy, sell and own property, sue others, be sued by others, hence it is called as an artificial person.
Question 10.
Which of the following is an important source of equity for startup companies:
(i) Trade credit
(ii) Venture capital
(iii) Stock exchange
(iv) Secondary market
(A) (iii) only
(B) (iii), (iv)
(C) (ii) only
(D) (ii), (iv)
Answer:
(C) (ii) only
Explanation: Venture capital is an important source of equity for startup companies. It involves the investment of capital by venture capitalists in exchange for an ownership stake in the company. These investments are made in early-stage companies with high growth potential. Venture capitalists not only provide funding but also offer expertise, guidance, and networks to support the startup’s growth and success.
Question 11.
XYZ Ltd. is a manufacturer of coffee. The company planned to expand and was planning to buy a land in Karnataka. The chief financial officer suggested to offer the shares to a limited number of sophisticated investors.
Out of the following, identify the method of raising the funds being suggested by the CFO:
(A) Public issue
(B) Right issue
(C) Private placement
(D) Offer to employees
Answer:
(C) Private placement
Explanation: Private placement means the direct sale by a company of its securities to a limited number of sophisticated investors. Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like, Unit Trust of India, Life Insurance Corporation of India, General Insurance Corporation of India, Army Group Insurance, State Level Financial Corporations, etc.
Question 12.
Yash was not too keen to take up his family run business of making bamboo baskets. But due to the bad condition of the family business, he had no option except to take up this business. He started thinking about the new ways of using bamboo. One day while having lunch in a restaurant, he overheard the owner talking about the difficulty in disposing the plastic and thermacol crockery that was being used in the restaurant. This provided him the stimulus for a new venture creation. Yash started looking into various options of making bamboo plates which could be used in the restaurants. He discussed the idea with his father who advised Yash that ideas should lead to commercially viable forms in order to survive and grow. Identify the concept discussed in the above situation.
(A) Creativity
(B) Idea germination
(C) Illumination
(D) Incubation
Answer:
(A) Creativity
Explanation: Creativity is an important and key component of the talents and abilities needed for an entrepreneur. Apart from applying creativity to spot and harness opportunities, it can also be applied to develop new products and services. Creativity in innovating a solution and vision. The entrepreneur should be able to creatively identify an idea to generate a valuable solution to a problem. Once the solution is identified their vision to convert the solution into business opportunity helps them to move forward, overcoming all the obstacles.
Question 13.
100 water bottles are proposed to be produced per week by a firm and for that ₹3,000 are needed for raw materials, for wages and other changes. If it takes three weeks to receive the payments on the sales, then what will be the working capital?
(A) ₹10,000
(B) ₹15,000
(C) ₹5,000
(D) ₹20,000
Answer:
(D) ₹20,000
Explanation: Money spent during the first week comes only at the end of fourth week.
Working capital is needed for four weeks.
Working capital = (₹3,000 + ₹2,000) × 4 weeks
= ₹5,000 × 4
= ₹20,000
Question 14.
Assertion (A): Rights issue is a method of raising additional finance from existing shareholders.
Reason (R): Right issue method of issuing securities is considered to be inexpensive.
(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: Rights 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. Normally, through a circular, rights issues are proposed to the existing shareholders and in case they are not willing to subscribe, they can renounce the same in favour of another person. This method of issuing securities is considered to be inexpensive as it does not require any brokers, agents, underwriters, prospectus, enlistment, etc.
Question 15.
Identify the third stage in Opportunity Project Interface.
(A) Scanning of environment
(B) Spotting of opportunity
(C) Starting a project
(D) Identification of product/service
Answer:
(D) Identification of product/service
Question 16.
Which of the following is the reason for mergers and acquisitions:
(A) Synergy
(B) Acquiring new technology
(C) Acquiring a competency
(D) All of the above
Answer:
(D) All of the above
Question 17.
Patil wants to start his business by taking a franchisee of McDonalds. He is planning to take the franchisee with the aim of speedy growth. The only way he could think is of taking the franchisee and McDonalds is the most popular food joint. The only limitation he sees is
(A) Advertising and promotion
(B) High initial investment
(C) Limited risks and liability
(D) Speed of Growt
Answer:
(B) High initial investment
Explanation: While taking a franchisee of a well-known brand like McDonald’s can offer benefits such as an established customer base and brand recognition, one of the limitations is the high initial investment required. Franchisees typically need to pay a significant upfront fee to acquire the franchise rights, along with other expenses like leasehold improvements, equipment, and inventory. This initial investment can be a barrier for individuals who have limited financial resources or who are seeking a low-cost entry into entrepreneurship.
Question 18.
D’va hand bags is a leather hand bags manufacturing company. It decided to join its operations together with Nutrients Ltd., which is an energy drink company especially for sportsmen and women. After this merger, D’va would help the existing companies to extend their markets as both of these firms will share the goodwill. Identify the type of merger relationship they are in.
(i) Product Extension Merger
(ii) Vertical Merger
(iii) Horizontal Merger
(iv) Market Extension Merger
(A) (i) only
(B) (iii), (iv)
(C) (ii), (iii)
(D) (ii)only
Answer:
(A) (i) only
Explanation: A product extension merger takes place between two business organizations that deal in products that are related to each other and operate in the same market. The product extension merger allows the merging companies to group together their products and get access to a bigger set of consumers. This ensures that they earn higher profits.
Part – B(12 Marks)
Question 19.
Before operationalisation of a Hindu Undivided Family Business, its Karta has to fulfil certain legal formalities. Explain any two such legal formalities.
Answer:
Legal formalities involved:
(i) Capital and Members: For an HUF to be created the major requirements is the capital and persons. Capital can be in the form of ancestral property, assets gifted by relatives and friends or received by the HUF through a will. The minimum number of members required is two.
(ii) Select a Suitable Name: The HUF to be created should have proper name. Entrepreneur should select a proper name for the HUF, ensuring it does not violate the laws or have any negative impact.
(iii) Form a Deed: Formation of HUF should be embodied in a deed which provides that a proper legal deed or agreement is required before creating a HUF, disclosing the name of Karta, Co-partners address and source of funds in the corpus.
OR
Ashok is engaged in the production of ready-made garments using cotton cloth. Identify the business activity in which Ashok in involved. Also name and define the utility created by Ashok.
Answer:
- Ashok is involved in the business of manufacturing.
- He is creating form utility
- Changing the form of raw material into finished products creates form utility
Question 20.
Merger of Hindustan Computers Ltd., Hindustan Instruments Ltd., Indian Software Company Ltd. and Indian Reprographics Ltd. into an entirely new company called HCL Ltd. Identify the forms of merger and explain the same.
Answer:
Merger through Consolidation/Amalgamation. A consolidation is a combination of two or more companies into a ‘new company’. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares.
Question 21.
Ayush Generic Medicines’, a chemist shop sells generic medicines. On 15.2.2016 medicines as per the details given below were sold:
No. of customers | Per customer billed amount ₹ |
15 | 370 |
20 | 430 |
45 | 500 |
25 | 1000 |
95 | 1200 |
Calculate the average amount of medicines sold per customer.
Answer:
Average amount of medicines sold per customer = \(\frac{\text { Total billed amount }}{\text { Total no. of customers }}\)
No. of customers | Per customer billed amount ₹ | Total billed amount (₹) |
15 | 370 | 5,550 |
20 | 430 | 8,600 |
45 | 500 | 22,500 |
25 | 1000 | 25,000 |
95 | 1200 | 1,14,000 |
200 | 1,75,650 |
\(\frac{₹ 1,75,650}{200}\) = ₹878.25
OR
Pankaj an entrepreneur started a new website ‘SAVO ELECTRICITY’ to sell LED bulbs. In the first year, he sold 2,400 bulbs at the rate of ₹100 each. His cost of placing an order and receiving the bulbs is ₹500 per order. If the Economic Order Quantity is 200 bulbs, find out the inventory holding cost per year.
Answer:
= ₹60 per units
Holding cost per year = ₹60 × 2,400
= ₹1,44,000
Question 22.
Amaga Private Ltd. is a steel manufacturing company having its headquarters at Delhi. They are a leading integrated steel manufacturer. Currently, one of the fastest growing companies in India and the tenth largest steel manufacturing company of the world. It is also the first company to manufacture high-strength and advanced high-end steel products for its automotive segments. Beeta Public Ltd. are also steel manufacturers with their headquarters in New York. For a long period, the company Beeta Public Ltd. had been facing workers unrest and it decided to sell its business to an international bidder. The highest bid for this was made by Amaga Private Ltd. for ₹20 crores. Afterwards Amaga Private Ltd. realised that the assets of Beeta Public Ltd. were overvalued and liabilities were under assessed and hence the price paid by them was higher. The employees of the two entities have different corporate cultures and styles of leadership which led to the problem of coordination. Ultimately Amaga Private Ltd. had to close its business. Identify and explain the growth strategy adopted by Amaga Private Ltd.
Answer:
The growth strategy adopted by Amaga Private Ltd. is Acquisition.
Acquisition 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.
Question 23.
How is target market identified while preparing the marketing plan? State.
Answer:
(i) Deciding what the general market or industry entrepreneur wishes to pursue.
(ii) Divide the market into small groups.
(iii) Buying situations.
(iv) Select segment and develop a marketing plan.
OR
State any two items of physical infrastructure that should be mentioned in the description of a business plan.
Answer:
Availability of the following items of infrastructure should be mentioned in the business plan:
(i) Raw Material: Whether indigenous or imported sources of supply, etc.
(ii) Labour: Types of labour required, provision for their training, number of manpower required, etc.
(iii) Utilities: These include – power, fuel, water, gas, electricity, etc. Business plan needs to clearly state:
(a) Type of utilities required
(b) Load sanctioned
(c) Sources and quality of water used, quantum of coal, coke, oil, etc. required and the supplies of the source.
(iv) Pollution Control: The sewage system, and the sewage treatment plant, water harvesting system, arrangement for dumping and disposing of the other type of waste or emission all need to be discussed in the plan.
Question 24.
Rohit Shetty started leather shoe business with his brother. Both were very excited about the new venture. With meticulous planning and a lot of hard work they were able to sell 700 pairs of shoes in the first year. But they did not earn any profit. Both were happy because they were not at loss and revenue generated was equal to the cost.
Now they were moving towards earning profit in the second year.
(i) Identify the component of financial plan discussed above.
(ii) By giving any two points state how this component is useful for the entrepreneur?
Answer:
(i) Break-Even Point is the component of financial plan.
(ii) Every firm wants to maximise its profit. The break-even point is the 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:
(a) The minimum level of output to be produced.
(b) The effect of change in quantity of output upon the profits.
(c) The selling price of the product.
(d) The profitable options in line of production.
Part – C(15 Marks)
Question 25.
“Many times creative products and services are born as results of problem solving”. Give examples.
Answer:
(i) Problem was over tightening of screw driver and the solution came in the form of a self-adjusting screwdriver which prevented over tightening.
(ii) Problem was when doctors found monitoring of dosage of medicine to be administered to patients on a regular basis through traditional methods using a syringe cumbersome and a solution was a pharmaceutical firm developed a new process of implanting the required medicine in the patient for constant discharge of regulated and required dosage into the blood stream.
Question 26.
List the socio-economic benefits that are expected to be acquired by an enterprise from its proposed investment.
Answer:
Socio-economic benefits expected to be acquired by an enterprise from its proposed investment are:
(i) Employment generation – Import substitution
(ii) Ancillarisation – Export promotion
(iii) Local resource utilisation – Development of the area.
OR
Which form of business is suitable for following types of businesses and why:
(i) Beauty Parlour
(ii) Shopping malls
(iii) Hotels
Answer:
(i) Sole proprietorship as it requires personal touch.
(ii) Public company as huge capital outlay is needed.
(iii) Private company as it requires more capital and managerial skills.
Question 27.
One of the strategies employed by companies to market their products involves utilizing mass media channels to establish brand identity. Please identify and provide an explanation for this particular approach.
Answer:
Above-the-line: These promotions use mass media methods. This type of promotion focuses on advertising to a large audience. It includes conventional media like print, online, television and cinema advertising. The activities include advertisements in the press. They also produce online banner advertisements, place advertisements on billboards and use their website to meet the needs of their consumers.
Question 28.
Evaluate the two approaches used in sales strategy by a company while retaining its present customers and when attracting new customers.
Answer:
Potential customers need communication that introduces the brand and product or service in ways that show how it can solve his or her problems. Current customers require more personal communication about new features or benefits to keep them engaged. Promotions and referral discounts work to motivate current customers to spend their money and to spread the word to others.
OR
Differentiate between Standardized product and Customized product. Which channel of distribution is best suited for customized product/ goods?
Answer:
Standardized products are those for which the cost is predetermined and there is no scope for alteration. It requires long distribution channel. Customized products are those which are made according to the discretion of the customer and there is a scope for alteration.
Direct Channel of distribution is best suited for customized product/goods.
Question 29.
Nishtha, a professionally qualified entrepreneur decided to start ‘kids furniture’ a website of designer furniture. It was relatively an untried area involving high risk. She lacked the necessary funds and experience to give shape to her idea. She knew that if she failed to get investment from the public her idea would die down before it is tried. So, she made a detailed business plan and presented her idea to ‘FiFa Finance Ltd, a company run by a group of professional investors. They were impressed by her business plan and decided to fund her start-up in exchange for an equity stake in the business.
(i) Identify the source of finance used by Nishtha.
(ii) Also explain how this source of finance is different from raising debt.
Answer:
(i) Source of finance used by Nishtha is Venture Capital.
(ii) This source is different from debts in the following ways:
(a) It is a permanent capital in business where as debt capital is to be repaid on maturity.
(b) To pay regular dividend of fixed amount is not compulsory whereas in debt regularly a fixed rate of interest has to be paid irrespective of profits or losses.
Part – D(25 marks)
Question 30.
Identify and explain formal statement of business goals with the plan for reaching those goals along with background, information about the organization and team attempting to reach those goals. How is this statement valuable to the entrepreneurs, customers, advisors and others who are trying to familiarize themselves with the venture, its goals and objective? Explain with the help of any six ways.
Answer:
The business plan is valuable to the entrepreneur, potential investors, venture capitalists, banks, financial institutions, new personnel’s suppliers, customers, advisors and others who are trying to familiarize themselves with the venture, its goals, and objectives. The business plan:
(i) Helps in determining the viability of the venture in a designated market.
(ii) Helps in providing guidance to the entrepreneur in organising his/her planning activities such as:
(a) Identifying the resources required.
(b) Enabling obtaining of licenses, if required.
(c) Working out with legal requirements as desired by the government.
(iii) Helps in satisfying the concerns, queries and issues of each group of people interested in the venture.
(iv) Provides room for self-assessment and self evaluation, requiring entrepreneur to think through various scenarios and plan ways to avoid obstacles.
(v) Though not desirable, at times, business plan helps to realize the obstacles which cannot be avoided or overcome, suggesting to terminate the venture while still on paper without investing further time and money.
(vi) As the investors/lenders focus on the four Cs of credit: Character, cash flow, collateral and equity contribution, it is the business plan which reflects the entrepreneur’s credit history, the ability to meet debt and interest payments, and the amount of personal equity invested thus serving as an important tool in funds procurement.
Question 31.
What are the five ways in which creative ideas can be generated?
Answer:
Creativity is an important and key component of the talents and abilities needed by an entrepreneur. Creativity can be applied to develop new products and services. There are basically five ways in which creative ideas can be generated. These are:
(i) Develop a new product or service.
(ii) Improve an existing product or service.
(iii) Find a new process or resource for manufacturing a product.
(iv) Find new markets for existing products or services.
(v) Find a new use of an existing product or service.
OR
Describe the elements/factors that assist an entrepreneur in product identification.
Answer:
The factors that help an entrepreneur to identify a product are:
Application and use: Ideas should be examined for their real-life use and application. If it already exists in the market, we will have to find out its present use and then we may think of modifying it for better use.
Level of operation: This is a crucial test for product/service identification. Depending on the use of the product/service the entrepreneur will produce it in a cottage industry or a small scale-industry or a large-scale industry.
Cost: What is the per unit cost of the product at particular level of operation? Whether this cost is comparable with that of other competitive products? These are some of the questions that have to be answered. This will ultimately decide the sale price.
Competition: Any product or service will face market competition at some stage. So, market competition should be assessed through a study of the trends in demand and supply.
Technical complexity: What type of technology is required to produce the product? Whether training and application of such technology will be locally available or will it have to be supported from other places? What would be the position of supply of plant and machinery for such a technology? These are important issues that have to be resolved.
Annual turnover and profit margin: Ideas should also have to be examined on the basis of expected annual turnover. This will also indicate the market share of the product or service.
Question 32.
Hemant’s grandfather owned a huge agricultural firm in the name of ‘Organica’. The company had huge acres of land in Kerala where it grew spices. The company planned to expand and was planning to buy land in Coorg, Karnataka where it will grow coffee. While visiting the place, Hemant saw that the villagers had to walk more than 10 kms of hilly terrain to reach the hospital and he also felt that the villagers did not have any work in the evening apart from doing agricultural work in the morning. For expansion purposes he required money and the chief financial officer of his company suggested that they raise the required funds directly from the public. Hemant also decided to open a hospital and a skill development centre or the villagers in the evening wherein they can learn a lot of new skills.
(i) Explain the method of raising funds directly from the public and the primary advantage that Hemant stands to gain from it.
(ii) Also explain any two other methods of raising funds.
Answer:
(i) Public issue / going public: Public issue involves raising of funds directly from the public through the issue of prospectus. An enterprise organizing itself as a public limited company can raise the required funds commonly by preparing a prospectus. When an entrepreneur offers shares to the public for subscription he/she is required to comply with all the restrictions and formalities pertaining to the initial issues, prospectus drafting and launch.
The primary advantage that an entrepreneur stands to gain is – access to capital.
(ii) The other methods of raising funds are as follows:
(a) Rights issue: Rights 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.
(b) Private placement: Private placement means the direct sale by a company of its securities to a limited number of sophisticated investors. Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like Unit Trust of India, Life Insurance Corporation of India, General Insurance Corporation of India, Army Group Insurance, State Level Financial Corporations, etc.
(c) 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.
Question 33.
What is marketing mix? How does marketing mix play an important role in enhancing the sale?
Answer:
The marketing mix refers to the ingredients or the tools on the variables which the marketing mixes in order to interact with a particular market. Marketing mix plays an important role in enhancing the sales of the enterprise. Its following components help in increasing the sales:
(i) Product: If various features and characteristics of the product are as per the liking of majority of the potential customers, the sales are automatically going to be higher. Effective after sales service, efficient utilization of know how, full capacity production will create good support for the product. Consequently, sales will be enhanced.
(ii) Price: Favourable and adequate pricing depending on the paying capacity of the customers always appeal the customers. The loyalty towards the product is also enhanced which ensures minimum sales and also attracts new customers. Various pricing methods are available at the disposal of the entrepreneur. Selection of appropriate method can be used as a tool for raising sales.
(iii) Promotion: Publicity plays a leading role in promoting sales. Depending on the nature of the product, the advertisement mode can be selected. Door to door selling, newspaper, radio, pamphlet, etc. are the various methods, which can be used for increasing the number of customers.
(iv) Place: Various channels of distribution can be effectively used by an entrepreneur depending on the nature of market, preference of consumers and the nature of the product. Shorter the channel of distribution more efficient is distribution.
OR
What do you mean by channel of distribution? Explain the product related factors affecting the choice of channel of distribution.
Answer:
A channel of distribution or trade channel is defined as the path or route along which goods move from producers or manufacturers to ultimate consumers or industrial users. In other words, it is a distribution network through which the producer puts his products in the market and passes it to the actual users.
When a manufacturer selects some channel of distribution, he should take care of such factors which are related to the quality and nature of the product. They are as follows:
(i) Unit value of the product: When the product is very costly it is best to use a small distribution channel. For example, industrial machinery or gold ornaments are very costly products that is why for their distribution small distribution channel is used. On the other hand, for less costly products long distribution channel is used.
(ii) Standardised or customised product: Standardised products are those for which cost is pre-determined and there is no scope for alteration. To sell this long distribution channel is used. On the other hand, customised products are those which are made according to the discretion of the customer and also there is no scope for alteration, for example furniture. For such products face-to-face interaction between the manufacturer and the consumer is essential. So, for these direct sales is a good option.
(iii) Perishability: A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product which is of a highly perishable in nature. On the contrary, a long distribution channel can be selected for durable goods.
(iv) Technical nature: If a product is of technical nature, then it is better to supply it directly to the consumer. This will help the user to know the necessary technicalities of the product.
Question 34.
Sales = ₹40,000
Variable cost = ₹20,000
Fixed cost = ₹12,000
(i) Find out P/A ratio, breakeven point, margin of safety.
(ii) Calculate B.E.P. with the effect of:
(a) 10% decrease in fixed cost
(b) 10% increase in fixed cost
(c) 10% decrease in variable cost
Answer:
MOS = Actual Sales – B.E.P. sales
= ₹40,000 – ₹24,000
= ₹16,000
(ii) (a) 10% decrease in fixed cost
Then, Sales = ₹40,000
Variable cost = ₹20,000
Fixed cost = ₹12,000 – (10% of ₹12,000)
= ₹12,000 – ₹1,200
= ₹10,800
P/V Ratio = \(\frac{₹ 40,000-₹ 20,000}{₹ 40,000}\)
= 50%
B.E.P. = \(\frac{₹ 10,800}{50 \%}\) = ₹21,600
(b) 10% increase in fixed cost
Fixed cost = ₹13,200
Sales = ₹40,000
Variable cost = ₹20,000
P/V ratio = \(\frac{S-V}{S}\) = 50%
B.E.P. = \(\frac{₹ 13,200}{50 \%}\) = ₹26,400
(c) 10% decrease in variable cost Sales = ₹40,000
Variable cost = ₹20,000 – ₹2,000 = ₹18,000
P/V ratio = \(\frac{S-V}{S}\)
= \(\frac{₹ 22,000}{₹ 40,000}\) = 55%
B.E.P. = \(\frac{₹ 12,000}{55 \%}\) = ₹21,818