Students can access the CBSE Sample Papers for Class 12 Entrepreneurship with Solutions and marking scheme Set 4 will help students in understanding the difficulty level of the exam.
CBSE Sample Papers for Class 12 Entrepreneurship Set 4 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.
Vani, Shiva, Bhanu and Kumar are good friends. They are the students of class IX and are studying in the same school. They were admitted at the age of 5 years and did not fail in any class. They want to start a retail business. Can they form a partnership?
(A) They can form a partnership after taking permission from the parents.
(B) They can form a partnership after taking permission from their school principal.
(C) They can form a partnership because they are more than two persons.
(D) No, they cannot form a partnership because all of them are minors.
Answer:
(D) No, they cannot form a partnership because all of them are minors.
Explanation: Minors (below 18 years of age) are considered incompetent to enter into any contract. Thus, they cannot form a partnership.
Question 2.
The entrepreneurs have an option to brand their product alpha-numerically, as it signifies:
(A) Chemical characteristics
(B) Physical characteristics
(C) Neutral characteristics
(D) Mathematical characteristics
Answer:
(B) Physical characteristics
Question 3.
Raman started a gym named as ‘Strong Body’. He installed large number of machines and equipment of different types and appointed qualified trainers to help the customers in the use of machines. Initially he kept a low fee per hour so that boys and girls belonging to the poor families may also avail the facilities of the gym. Very soon his gym became popular and he started operating in three shifts. For this, he appointed additional trainers. He also installed extra machines so that more customers could be enrolled. In one year, he started earning good profit. He took a nearby building on rent and started a ‘Recreation and Health Club’ for the senior citizens of the locality on very nominal charges. He also encouraged young boys and girls to participate in the cleanliness drive started by Prime Minister. They agreed and started giving one hour daily for cleanliness of the nearby areas before opening of the ‘Strong Bod/ gym and ‘Recreation Club’. Out of the following, identify the type of business expansion that took place under the entrepreneurship of Raman:
(A) Internal expansion
(B) External expansion
(C) Franchising
(D) None of these
Answer:
(A) Internal expansion
Explanation: Internal expansion results from the gradual increase in the activities of the concern. The concern may expand its present production capacity by adding more machines or by replacing old machines with the new machines with higher productive capacity. The internal expansion can also be undertaken by taking up the production of more units or by entering new fields on the production and marketing sides. Internal expansion may be financed by issue of more share capital, generating funds from old profits or by issuing long–term securities. The net result of internal expansion is the increase in business activities and broadening the present capital structure.
Question 4.
Sohan and Shyam are partners in a business of manufacturing biscuits. They are planning to merge with a namkeen manufacturing company in order to increase the sales and earn more profit. They decided to adopt merger as their strategy for growth. Mention which two ways are available for them to select to give way to the merger.
(i) Amalgamation
(ii) Absorption
(iii) Consolidation
(iv) Acquisition
(A) (i) and (ii)
(B) (i) and (iii)
(C) (iii) and (iv)
(D) (i) and (iv)
Answer:
(A) (i) and (ii)
Question 5.
How is ‘Unit of Sale’ determined in a restaurant providing dinner?
(i) Unit of sale will be the number of dinners offered.
(ii) Unit of sale will be the average amount billed per dinner.
(iii) Unit of sale will be the amount of gross profit.
(iv) Unit of sale will be the amount of working capital.
(A) (i) only
(B) (ii), (iii)
(C) (iii), (iv)
(D) (iii) only
Answer:
(A) (i) only
Explanation: In the case of a restaurant, the unit of sale would be a Dinner. This is different from the person who pays the bill. A group my consist of 10 people or 5 or 2. At times it may even be one. In each case, the number of persons paying the bill would most likely be one. So, it is more accurate to go by the number of Dinners. The dinner is the unit of sale and the average amount billed per dinner would be the unit price.
Question 6.
A grocery store in a day sold different quantities 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 and if the cost of each grocery item is 75% of its selling price, what will be the “gross margin” per unit of sale?
(A) ₹ 25
(B) ₹ 10
(C) ₹ 20
(D) ₹ 5
Answer:
(B) ₹ 10
Unit cost is ₹ 30
Gross margin = Unit price – Unit cost
= ₹40 – ₹30
= ₹10
Question 7.
Radhika is an innovative entrepreneur. She has decided to open the business of plastic bricks. But before implementing her project, she wants to investigate the marketability of this idea. A venture capitalist was ready to fund her investigation. _________ form of finance is Radhika availing.
(A) Angel investor
(B) Venture capitalist
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(B) Venture capitalist
Question 8.
Basant Builders, who were engaged in building and selling of flats, wanted to expand their business. To do so, they decided to merge with Krity Constructors, who were their biggest competitors. It was decided that they would merge the companies with equal shares and form a new company Chachan Realtors. The type of merger in this case is _________.
(A) Product Extension Merger
(B) Vertical Merger
(C) Horizontal Merger
(D) Market Extension Merger
Answer:
(C) Horizontal Merger
Explanation: Horizontal merger is a business consolidation that occurs between firms which operate in the same space, often as competitors offering the same goods or service.
Question 9.
Assertion (A): Net profit ratio is an indicator of the profitability of the business activity.
Reason (R): Net profit ratio establishes the relationship between net profit before taxes and net sales turnover.
(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:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
Explanation: The main objective of a business is to earn maximum profit by using minimum resources. It establishes the relationship between net profit before taxes and net sales turnover. It is usually expressed as a percentage. It is an indicator of the profitability of the business activity. Higher the ratio the better it is. It measures the rate of return on sales. It enables to measure the overall efficiency of business.
Question 10.
Which of the following will help the entrepreneur to understand the market and produce goods or provide services in sync with the market:
(A) Opportunity
(B) Trend spotting
(C) Brainstorming
(D) Both (B) and (C)
Answer:
(B) Trend spotting
Explanation: Trend spotting means identification of new trends. This will help the entrepreneur to understand the market and produce goods or provide services in sync with the market trends.
Question 11.
Which component of product mix is highlighted in the following lines:
“The corrugated box will display all the necessary information such as ingredients list, weight, manufacturing date, expiry date, etc.”
(A) Branding
(B) Packaging
(C) Labelling
(D) None of these
Answer:
(C) Labelling
Explanation: A label provides complete information regarding the product. It mainly includes ingredients of the product, its usage, and caution in use, precautions to be taken while using it, date of manufacturing, batch number, etc.
Question 12.
Assertion (A): The relation of partnership arises from contract and not from status.
Reason (R): The business of partnership can be carried on by all the partners or any one of them acting for all.
(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:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
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. Thus, two or more persons may form a partnership by making a written or oral agreement to carry a business jointly and share its proceeds. Thus, 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 13.
A capital market is a mechanism meant for transfer of money capital from which of the following:
(A) Investors to the entrepreneurs
(B) Shareholders to the entrepreneurs
(C) Entrepreneurs to investors
(D) Entrepreneurs to shareholders
Answer:
(A) Investors to the entrepreneurs
Explanation: A capital market may be defined as an organized mechanism meant for effective and smooth transfer of money capital or financial resources from the investors to the entrepreneurs. Here, productive capital is raised and made available for industrial purposes.
Question 14.
Assertion (A): An idea leads to a solution to resolve that problem.
Reason (R): Competition often results in emergence of new and better ideas.
(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:
(B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
Explanation: To sense an entrepreneurial opportunity, an entrepreneur employs his/her sharpened skills of observation, analysis and synthesis to identify an opening. Spotting an idea often triggers the process of sensing an opportunity. When a problem exists, an idea leads to a solution to resolve that problem, it emerges as a business opportunity. Competition often results in emergence of new and better ideas that result in new business opportunities.
Question 15.
Rajan, son of a humble soldier of the Indian army, did not have the resources to prepare for a medical entrance exam, but decided to launch a venture that would help others achieve their dreams. His startup, launched in July 2020 with zero investment, has docked a turnover of 735 lakh in just 10 months and he has achieved it all as a one-man army. The start-up prepares Group C employees of the Department of Post for the Limited Departmental Competitive Exams (LDCE) that qualifies them for their next promotion in the department. He realised that there was no training centre or coaching class for the aspirants so he marketed his classes for this specific group. Which step is involved in this marketing plan?
(A) Identify the target market
(B) Conduct SWOT analysis
(C) Establish goals
(D) Define marketing strategy
Answer:
(A) Identify the target market
Explanation: For a new venture to be successful, it is very essential to define clearly the specific group of potential customers whose needs the enterprise aims to fulfill.
Question 16.
Sen wanted to start a spare parts manufacturing unit. These spare parts will be used for the production of electric vehicles. For preparing the business plan he took the help of lawyers, accountants and marketing consultants. A detailed plan that will be needed by management was prepared. The plan was not targeted at external stakeholders. Which format of business plan was used by Sen?
(A) Elevator pitch
(B) A pitch deck with oral narrative
(C) A written presentation for external stakeholders
(D) An internal operational plan
Answer:
(D) An internal operational plan
Explanation: An internal operational plan contains planning details for the guidance of management and workers.
Question 17.
Shruti, Neelabh and Shewtabh decided to start their own business of manufacturing steel utensils. They also finalised to set-up the manufacturing unit in Orissa as labour is available there at a very low rate. They also decided about the sources for the procurement of required funds and all the relevant external and internal factors affecting this venture. Identify the document which is required to be prepared by the entrepreneurs for the above decisions.
(i) Financial plan
(iii) Human resource plan
(ii) Production plan
(iv) Organisational plan
(A) (ii) only
(B) (iii), (iv)
(C) (ii), (iv)
(D) (i) only
Answer:
(D) (i) only
Explanation: As timely availability of funds in right volume is key to entrepreneurial success, the entrepreneur should develop a sound financial plan discussing financial requirements, sources of raising funds and exact assessment of the revenue, cost, profits, cash flow dynamics, stock of inventory loans, etc.
Question 18.
Reliance Industries in its AGM of 2021 shows a power point presentation of performance of FY 2021 and future plans of including the chairman of Saudi Aramco as independent director in Reliance. It has a new project to invest in 775 thousand crores to start green energy segment, which was explained by Mukesh Ambani himself through this presentation. What format of business plan did he use?
(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 pitch deck with oral narrative is 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.
Part – B(12 Marks)
Question 19.
Why finance is required in the business? State any four requirements.
Answer:
Finance is the elixir that assists in the formation of new businesses, and allows businesses to take advantage of opportunities to grow and expand. Right from the very beginning i.e., conceiving an idea; finance is required to:
Promote or establish the business
Acquire fixed assets
Make market investigations
Develop product
Keep men and machines at work
Encourage management to make progress and create value.
Expand, diversify, improve and grow.
Be enough to meet unexpected/unplanned business expenses.
OR
What do you understand by Angel Investors.
Answer:
Angels are high net worth individuals, usually successful people or professionals who provide early stage capital to start up business in return of either debt or equity or both. They provide funds to firms which are generally too small to be noticed by venture capital firms.
Question 20.
Vikrant was always interested in technology driven products. After finishing his engineering degree, he started working on a new walking stick which will help blind people. The stick will be Bluetooth and wi-fi enabled which will be connected through an app on the phone which will guide the blind persons about the objects in front of their walking path. He has started testing the walking stick and found that the stakeholders were satisfied and it had a great value to the customers. Identify and explain the stage of innovation process in which Vikrant is?
Answer:
Innovation is the process of entrepreneurship which involves the translation of a useful idea into an application which has commercial value. It takes persistent efforts to work out analytically the details of the enterprise or service, to develop marketing strategies, to organize finances and strategise operations. Vikrant is in Commercial application stage. The provision of value to customers, reward employees, and satisfy the stake holders constitute the commercial application stage.
Question 21.
Green Smiles Ltd. sells eco-friendly distemper paint pigment in many color options. They sell 2,000 units at the rate of 7100 per unit per annual. It spends 7500 for placing one order and the cost of holding the stock is 750. Calculate Economic Ordering Quantity for Green Smiles Ltd.
OR
Electronics India Ltd. manufacturers three products X, Y and Z. The total fixed cost is 780,000 and the weighted average contributions per unit is 720. What will be the break-even point of sales.
Answer:
Question 22.
Generating ideas is relatively an easy exercise, especially if it is done in groups. However, this process can also become a wild goose chase because all ideas need not necessarily become sound business opportunities. One has to assess it in terms of the potentiality of the opportunity. Comment on the first two steps involved in this type of investigation.
Answer:
The first two steps involved in this type of investigation are discussed below:
(i) Product identification: 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 should also see 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.
(ii) Application and use: Ideas should be examined for their real-life use and application. If it already exists in the market, an entrepreneur has to find out its present use, then he may think of modifying it for better use.
Question 23.
Rahul runs a grocery shop in the local market. He buys goods from the wholesale market and sells it to the customers as per their requirement. By doing so he earns some profit. He had started his business two years ago by investing ₹2 lakhs, which he had borrowed from his relatives. Today, he is running his business successfully, earning a good profit, and has been able to pay back the borrowed money. He has also employed two persons to help him in the shop. A textile factory is going to be started in the nearby area where Rahul is carrying on his business. As a businessman, he is now in a delighted mood and wants to expand his business. He is thinking that once the textile factory is set up, he will get more customers; the sales will increase and he will earn more profit. But, for all these, he will have to expand his business, and for this he needs more money. The major problem is how to arrange the additional funds. He has the option of getting loans from the banks. But the fear of loss comes to his mind again and again. He does not want to take that risk. Another option is that he may join hands with some other person. By doing so, more resources can be raised, work can be shared, and business can be run in a better way. The risk of loss will also be shared. Identify and explain the form of business organisations mentioned in the above passage.
Answer:
The form of business organisations mentioned in the passage are Sole proprietorship and Partnership. Sole proprietorship form of business is exclusively owned by a single person. “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. 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. Thus, two or more persons may form a partnership by making a written or oral agreement to carry a business jointly and share its proceeds. The objective of the business is to make profits and distribute the same amongst partners.
Question 24.
In the realm of product promotion, companies can adopt various approaches to reach their target audience. One effective method involves leveraging mass media channels and devising a promotion strategy that focuses on establishing a distinctive brand identity. Elucidate this approach and its significance in promoting products.
Answer:
Above-the-line: Above-the-line 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. Above-the-line 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. Making a message memorable to a large audience is not always easy. It is difficult to tailor a promotion to a specific group of consumers through above-the-line promotions. This is because it is viewed by a mass audience with different tastes and needs. Above-the-line promotion is also very expensive.
OR
Since there are multiple advantages of growing a business through the franchise mode, certain disadvantages also exist that need to be carefully examined. Explain any two disadvantages of franchising to the franchisee.
Answer:
Disadvantages of franchising to the franchisee are asfollows:
(i) Right and the only way of doing things: Entering into a franchise contract limits the degree of freedom for the franchise. As such, one gets an over-guided and over-influenced degree of control exerted by the franchisor. This results in losing the freedom to innovate to some extent.
(ii) Continuing cost implication: Over and above the original franchise fee and royalties, a percentage of revenue gets shared perpetually with the franchisor. The franchisor may also charge additional amounts towards sharing the cost for services provided such as advertising and training. As such, entering into franchise contracts with a well-known franchisor becomes a very expensive proposition because of a tendency on their part to exploit the franchisee.
(iii) Risk of franchisor getting bought: The franchisee faces serious problems and difficulties when the franchisor either fails or gets bought out by another company.
(iv) Inability to provide services: The disadvantages to the franchisee usually center around the inability of the franchisor to provide services advertising and location. When promises made in the franchise agreement are not kept, the franchisee may be left without any support in important areas.
Part – C(15 Marks)
Question 25.
With regards to ‘public issue’ as a source of finance, answer the following questions:
(i) Which type of enterprise can raise funds by ‘Public Issue’?
(ii) What is the benefit to an investor while investing in ‘Public Issue’?
(iii) Despite many benefits, this source of finance has some additional obligations and reporting requirements.
State any six such obligations and requirements.
Answer:
(i) Public Limited Company
(ii) The reward investors seek is an appreciation of their investment and possibly dividends.
(iii) While there are benefits to going public, it also means additional obligations and reporting requirements such as:
(a) Increasing accountability to public shareholders.
(b) Need to maintain dividend and profit growth trends.
(c) Becoming more vulnerable to an unwelcome takeover.
(d) Need to observe and adhere strictly to the rules and regulations by governing bodies.
(e) Increasing costs in complying with higher level of reporting requirements.
(f) Relinquishing some control of the company following the public offering.
(g) Suffering a loss of privacy as a result of media interest.
OR
“Angel investments is a common second round offinancing 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 earlystage 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 26.
Why is it necessary to know the preferences of buyers in designing a market strategy? Explain any three reasons.
Answer:
Consumer preferences must be found out due to following reasons:
(i) Selection of Product: Entrepreneur can select the product for his enterprise on the basis of consumer needs.
(ii) Quality: Entrepreneur gets an idea about the quality of the product to be maintained.
(iii) Price: Based on the consumer needs and their paying capacity, the price of the product can be fixed.
(iv) Area: Consumer provides the information about the strength of the potential customers. This is used for planning supply.
OR
In U.K., they are called ‘end lines’, ‘end lines’ or ‘strap lines’. Germans call them as ‘claims’. French refer them as ‘signatures’, while Belgians call them ‘base lines’ Identify the concept and explain any two of its forms.
Answer:
The concept referred to in the question is tag lines, which are catchy phrases or slogans used in advertising and marketing to promote a product, brand, or company.
The forms of tag lines mentioned are:
(i) Questions: Some tag lines are posed as questions to engage the audience and make them think about the product or brand. For example, “Got Milk?” is a famous tag line that encourages people to consider the importance of consuming milk.
(ii) Statements: Tag lines can also be in the form of statements that convey a specific message or highlight a unique selling point. Examples include Nike’s “Just Do It” and Apple’s “Think Different.”
(iii) Exclamations: Some tag lines use exclamations to evoke excitement, enthusiasm, or a sense of urgency. For instance, “Taste the Rainbow!” is the tag line used by Skittles to emphasise the colourful and enjoyable experience of eating their candy.
Question 27.
In a scenario where the business assets of an organization are valued at 1,00,000 while the remaining unpaid debts amount to 1,60,000, what options are available to the creditors based on the following circumstances:
(i) If the organization is a sole proprietorship firm.
(ii) If the organization is a partnership firm with Saransh and Suyash as partners. Additionally, clarify which of the two partners the creditors can approach for debt repayment and provide reasons for your answer.
Answer:
(i) They can claim over the personal property of sole proprietor as his liability is unlimited.
(ii) Creditors can approach both Saransh and Suyash and they are liable to pay back in their profit-sharing ratio but in case one of the partners becomes insolvent then creditor can claim from other partner also.
Question 28.
Adas Ltd. and Galria Ltd. deals with men and women shoe manufacturing respectively in Mumbai and Gujarat. After sometime the market wasslowly taken over by big shoe company. Both Adas Ltd. and Galria Ltd. understood the competition and decided to come together so as to increase their market share. This strategy helped them in cost saving through economies of scale as they could cover more areas now. It led to overall growth of both the companies.
(i) Identify the enterprise growth strategy adopted by the two.
(ii) Explain any two benefits that the companies have after this arrangement.
Answer:
(i) A market extension merger takes place between the two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.
(ii) The benefits that the companies have after this arrangement are as follows:
- Synergy: Synergy refers to the difference between the value of the combined firm and the value of the sum of the participants. Synergy accrues in the form of revenue enhancement and cost savings.
- Acquiring new technology: To remain competitive, companies need to constantly upgrade their technology and business applications. By buying another company with unique technology, the buying company can maintain or develop a competitive edge.
- Improved profitability: Companies explore the possibilities of a merger when they anticipate that it will improve their profitability.
- Acquiring a competency: Companies opt for mergers and acquisitions to acquire a competency or capability that they do not have and which the other firm has.
- Entry into new markets: Mergers are often looked upon as a tool for hassle-free entry into new markets. Through mergers one can enter the market with greater ease and avoid too much competition.
- Access to funds: Often companies find it difficult to access funds from capital market. In such a case company may decide to merge with another company which is fund-rich.
- Tax benefits: By merging with a lossmaking entity, a company with high tax liability can set off the accumulated losses of the target against its profits, gaining tax benefits.
Question 29.
Where the production plan aims at “plan your work”, there operations plan ensures “work your plan”. In the light of the given statement, examine the blue print of an operational plan for an entrepreneur.
Answer:
Where the production plan aims at “plan your work”, there operations plan ensures “work your plan”. It is actually a blue print prepared right in advance of actual operations:
(i) Ensuing orderly flow of materials in the manufacturing process from the beginning (raw state) to the end (the finished products)
(ii) Facilitating continuous production, lesser workin-progress and minimization of wastage.
(iii) Coordinating the work of engineering, purchasing, production, selling and inventory management.
(iv) Describing the flow of goods / services from production point to the consumers.
(v) Introducing a proper system of quality control
(vi) Undertaking the best and most economic production policies and methods.
Part – D(25 Marks)
Question 30.
A and B started identical business and performing identically in terms of sales, variable costs, fixed costs, etc. A had his own savings so he did not borrow any money but B did not have savings so he borrowed ₹4 lacs at the interest rate of 10% per annum. Total capital investment in both businesses is ₹20 lakh. Their EBIT is ₹2 lakh. Tax rate @20%.
Calculate ROE and ROI for each business.
Answer:
(ii) A s ROE is grater than B’sROE due to presence of loan capital in capital structure and ROI is lesser.
(iii) For a true measure of how “own money” is being used ROE is a good indicator. ROI on the other hand, gives an indication of how “total money” is being used.
Question 31.
“An entrepreneur who fails to scan the business environment is unlikely to survive in the long run.” Explain this statement.
Answer:
The above statement is correct because scanning the business environment provides following benefits:
(i) Identification of opportunities to get first mover advantage: By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalise on the opportunities at the earliest. For example, Volvo, the Swedish brand, has 74% share in the luxury bus segment as it had entered India earlier.
(ii) Formulation of strategies and policies: It helps in identifying threats and opportunities in the market. These can serve as the basis of formulation of strategies to counter threats and capitalise on opportunities in the market.
(iii) Tapping useful resources: If the company has a thorough knowledge of the external environment, it can tap raw materials, technology and even financial resources from the market at economical prices, at the right time.
(iv) Better performance: Proper understanding of the various elements of the external environment is necessary to take timely action to deal with threats and avail opportunities for the purpose of improvement in the performance of the firm.
(v) Sensitisation of entrepreneurs to cope up with rapid changes: A keen watch on the trends in the environment would help sensitise the entrepreneur to changing technology, competition, government policies and changing needs of the customers. For example, trends in clothing.
(vi) Image building: If a company is sensitive to the external environment, it will come out with new products and services to meet the requirements of the customers. This would build the image or reputation of the firm in the eyes of the general public. For example, call–radio taxis with additional features like GPS systems, online booking, etc.
OR
What is meant by a ‘Business Plan’? State any one importance of writing a business plan for each of the given interest groups:
(i) Investors
(ii) Entrepreneurs
Answer:
The 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.
(i) Investors: As the investors/ lenders focus on the four C’s 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.
(ii) Entrepreneurs: It helps in determining the viability of the venture in a designated market and provides guidance to the entrepreneur in organizing his/her planning activities as such identifying the resources required, enabling obtaining of licenses if required, etc., working out with legal requirements as desired by the government, providing for self-assessment and self-evaluation. Business plan makes entrepreneur to think through various scenario and plan ways to avoid obstacles.
Question 32.
An entrepreneur has a number of alternative channels available to him for distributing his products. These channels vary in the number and types of middlemen involved. Explain the different types of channels of distribution.
Answer:
Channels of distribution are broadly divided into four types:
(i) Producer-customer (Direct channel-zero level): This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. It is fast and economical channel of distribution. Under it, the producer or entrepreneur performs all the marketing activities himself and has full control over distribution. A producer may sell directly to consumers through door-to-door sales persons, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers.
(ii) Producer-retailer-customer (Indirect-one level): This channel of distribution involves only one middleman called ‘retailer’. Under it, the
producer sells his/ her product to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers. This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value.
(iii) Producer-wholesaler-retailer-customer (Two levels): This is the most common and traditional channel of distribution. Under it, two middlemen i.e., wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in turn sell it to retailers. And, retailers finally sell the product to the ultimate consumers. This channel is suitable for the producers who have limited finance, narrow product line and need expert services and promotional support of wholesalers. This is mostly used for the products with widely scattered market.
(iv) Producer-agent-wholesaler-retailer-customer (Three levels): This is the longest channel of distribution in which three middlemen are involved. This is used when the producer wants to be fully relieved of the problem of distribution and thus hands over his/ her entire output to the selling agents. The agents distribute the product among a few wholesalers. Each wholesaler distributes the product among a number of retailers who finally sell it to the ultimate consumers. This channel is suitable for wider distribution of various industrial products.
OR
What does the term “sales strategy” refer to, and why is it crucial for a business to establish a well-executed sales strategy?
Answer:
Sales strategy consists of a plan that positions a company’s brand or product to gain a competitive advantage.
Importance:
(i) Successful strategies help the sales force focus on target market customers and communicate with them in relevant and meaningful ways.
(ii) Sales representatives need to know how their products or services can solve customer’s problems. A successful sales strategy conveys
this so that the sales force spends time targeting the correct customers at the right time.
(iii) Planning and creating an effective sales strategy requires looking at long-term sales goals and analyzing the business sales cycle, as well as meeting with sales people about their personal career goals. Going through these exercises helps business owners and managers gain a more intimate knowledge of the sales intervals, seasonal changes and what motivates the sales team.
(iv) After creating the long-term sales strategy based on long-term goals, sales managers should create monthly and weekly sales strategies based on the long-term strategy. This allows for short-term performance measurement of the sales team.
Question 33.
Venture capitalists are typically very selective in deciding what to invest in and as a rule of thumb. Analyse and justify the statement.
Answer:
Venture capitalists are typically very selective in deciding what to invest in and as a rule of thumb as:
(i) They may invest in one in four hundred opportunities presented to it.
(ii) They look for the extremely rare, yet sought after qualities, such as:
- Innovative technology
- Potential for rapid growth
- A well-developed business model
- an impressive management team
(iii) They look for an “exit” in the time frame of typically 3-7 years.
(iv) They are inclined towards ventures with exceptionally high growth potential. Thus, entrepreneurs are expected to carry out detailed due diligence prior to seeking venture capital as a source of financing. As venture capitalists’ investments are illiquid, requiring extended time frame to harvest, an entrepreneur should carefully evaluate and analyse, the stage which he/she would require venture capitalist to assist in.
Question 34.
After graduating in 2018 with a specialization in electronic goods repair, Shyam encountered his uncle, who owned a small factory manufacturing electronic circuits for televisions. Learning that his uncle could no longer operate the business, Shyam took charge. With only two workers in place, Shyam secured a substantial order to supply 20,000 electronic circuits monthly from a renowned TV manufacturer in India. Recognizing the need for timely order fulfilment, Shyam opted to devise a manpower plan. Describe the factors that Shyam has to keep in mind while formulating manpower plan.
Answer:
Karan has to formulate manpower planning keeping in mind the following:
(i) What kind of people are required: To carry on it’s work, each the organisation needs personnel with the necessary qualifications, skills, knowledge, experience and aptitude for work. Since it is a factory, Karan will need more semi-skilled employees keeping in mind that they will be manufacturing electronic circuits. He will also need a manager to supervise the production work.
(ii) How many people are required: This question deals with the quantity of personnel the enterprise needs. Presently the factory has just two employees, so Karan will need at least ten workers to achieve the production target every month. This number of employees will be taken into account keeping in mind the absenteeism and turnover.
(iii) How to procure personal?: As the next step in manpower planning, entrepreneur clearly mentions the strategies, methods, policies, rules and regulations pertaining to employees. He can approach his own polytechnic college and recruit fresh graduates. He has to properly train the employees so that there is less error in production and the target is completed on time.