Class XII - Business Studies Practice Paper - 3 - Answers

Subject: Business Studies

Class XII

Time Allowed: 3 hours

Max. Marks: 80

General Instructions:

1. This question paper contains 34 questions.

2. Marks are indicated against each question.

3. Answers should be brief and to the point.

4. Answers to the questions carrying 3 marks may be from 50 to 75 words.

5. Answers to the questions carrying 4 marks may be about 150 words.

6. Answers to the questions carrying 6 marks may be about 200 words.

7. Attempt all parts of the questions together

1. Stelo Plastic Makers has decided to include a team of dynamic managers in the company. For this, they want to judge the pattern of interests of the potential managers. After giving this test they want to further know how much the candidate is useful for organisation. They decide to take another test which can measure the existing skills of the candidates. Rakesh, an exceptional candidate, is given certain document which contains information like job title, pay, allowances, responsibilities, etc. After the employees join they are given a very good training. The company does not want to stop at ‘training’ which is a job related process. They want to bring a concept which is a career related process. Identify the document which is given to Rakesh in the above case.

(A) Contract of employment

(B) Letter of relieving

(D) Job description

2. Mohan runs a security service provider’s agency. Considering that psychological testing is a critical step for judging the potential of the prospective candidates for a career in law enforcement, he uses various types of psychological tests as part of the selection processes. This is done to ensure that potential new officers are emotionally and psychologically suited to carry out the requirements of the job. Identify the type of test that Mohan may use to assess the potential of the prospective candidates.

(A) Aptitude test

(B) Interest test

(D) Intelligence test

3. Feather Loom Ltd. has been doing a great job in the area of clothes designing. Within two years, the company has reached among the top most performers of the textile industry. The company has made a lot of profit and decided to distribute its profits to the shareholders who stood with it during the hard times. Identify and explain the type of decisions mentioned in the above case.

(A) Investment decision

(B) Budgeting decision

(C) Dividend decision

(D) Financing decision

4. For the following two statements, choose the correct option:

Statement I: Consumer organisations play an important role in educating consumers about their rights and providing protection to them.

Statement II: A consumer should not ask for a cash memo on purchase of goods or services.

Choose the correct option from options given below:

(A) Statement I is correct and statement II is wrong.

(B) Statement II is correct and statement I is wrong.

(D) Both the statements are wrong.

5. On the advice of Mudra Advertising Ltd., ‘Ramaha Automobiles’ has worked upon managing public opinion by developing better relations with the masses through sponsoring cultural and sporting events, maintenance of public parks, etc. Name the department in the organisation which is generally responsible for performing the above important task of managing public opinion.

(A) Marketing department

(B) A separate department created in the firm for the purpose

(D) Any of the above

6. ‘Shrishthi Enterprises’ has developed a strong distribution network in India and abroad by setting up retail outlets and reaching out to the customer through internet selling. Identify the decision related to the element of marketing mix being discussed above.

(A) Storing and assorting products in order to create time utility

(B) Regarding the channels or using intermediaries

(D) One regarding branding, packaging and labelling

7. ‘Yamuna Ki Bhujia’ offered its products at competitive prices even while offering customer services like gift packaging and free home delivery to become a household name. Identify the factor affecting the element of marketing mix being discussed above.

(A) Marketing methods used

(B) Objectives

(D) Product cost

8. Name the process of working with and through others to effectively achieve organisational objectives by efficiently using limited resources in a changing environment.

(A) Management

(B) Planning

(D) Controlling

9. “The increase in the demand for many Ayurvedic medicines, health products and services in the past few months, is related to the need for building immunity and an increased awareness for health care due to the spread of Coronavirus.” Identify the feature of business environment being described above.

(A) Specific and general forces

(B) Interrelatedness

(D) None of the above

10. Name the function of management which helps in the formulation of future plans, in the light of the problems that were identified and thus, helps in better planning in the future period.

(A) Planning

(B) Organising

(D) Controlling

11. ‘Even where members of a department willingly cooperate and work, a manager has to coordinate the efforts of different people in a conscious manner.’ Identify the characteristic of coordination discussed above.

(A) Coordination ensures unity of action.

(B) Coordination is a deliberate function.

(D) Coordination is an all-pervasive function.

12. “What distinguishes a successful manager from a less successful one is the ability to put the principles into practice.” Which aspect of the nature of management is highlighted in the above statement?

(A) Management as a science

(B) Management as an art

(D) Management is an intangible force

13.

Identify the dimension of the business environment illustrated by the picture given above in which wages are falling out whereas profits are increasing.

(A) Social environment

(B) Technological environment

(D) Economic environment

14. ____________ is the process by which the manager brings order out of chaos, removes conflict among people over allotted work or responsibility-sharing and creates an environment suitable for teamwork.

(A) Planning

(B) Organising

(D) Controlling

15. Match the concept of marketing in Column I with their respective definition in column II.

Column I	Column I
A.	Product concept	(i)	relates to maintaining high quality of the product
B.	Selling concept	(ii)	relates to satisfying customer needs
C.	Marketing concept	(iii)	relates to aggressively persuading the buyer to purchase the product

(A) (i), (ii), (iii)

(B) (ii), (i), (iii)

(D) (i), (iii), (ii)

16. ____________ ensures that the heads of separate business units in the organisation are responsible for profit or loss of their unit and have authority over it.

(A) Span of management

(B) Divisional structure

(D) Hierarchy of authority

17. ABC Ltd. has Debt Equity ratio of 3:1 whereas XYZ Ltd. has Debt Equity ratio of 1:1. Name the advantage ABC Ltd. will have over XYZ Ltd., when the rate of interest is lower than the rate of return on investment of the company.

(A) Trading on equity

(B) Low risk

(d) Greater flexibility

18. ………………. is used extensively for all types of organisations and mainly for taking charge of different activities in any enterprise.

(A) Planning

(B) Management

(D) Staffing

19. For optimal procurement of funds, a finance manager identifies different available sources and compares those items in terms of cost and associated risks. Identify concept highlighted in the above lines.

(A) Financial management

(B) Financial Decisions

(D) None of these

20. Which of the following statement is false for financial market?

(A) Financial markets facilitate difficulty in the purchase and sale of financial assets

(B) Financial markets provide valuable information about securities being traded in the market

(D) None of these

21. Identify the level of management whose basic task is to integrate diverse elements and coordinate the activities of different departments according to the overall objectives of the organisation. State any four functions of the level of management identified.

Ans. Top-level management

Functions of top-level management:

(i) The top-level managers are responsible for the welfare and survival of the organisation.

(ii) They analyse the business environment and its implications for the survival of the firm.

(iii) They formulate overall organisational goals and strategies for their achievement.

(iv) They are responsible for all the activities of the business and for its impact on society.

22. Mukta had been working as an assistant manager with Jelly & Jelly Enterprises for the last 15 years. She was very popular amongst her colleagues because of her commitment and dedication towards work. When the manager senior to her retired, all her colleagues thought that now Mukta would be promoted. But to everyone’s surprise, the vacant post was filled by an outsider, Neelam. Mukta felt demoralised and her performance started declining. She would absent herself often and could not meet her targets. Neelam was a good leader who would not only instruct her subordinates but would also guide and inspire them. She notices Mukta’s behaviour and felt that her performance could be improved. She started involving Mukta in the decision-making issues related to the organisation and made her a part of a high-level joint-management committee. Mukta was now punctual in office and her performance started improving. Identify and explain the function of management being performed by Neelam.

Ans. Neelam has performed the directing function of management. Directing refers to the process of instructing, guiding, counselling, motivating and leading people in the organisation to achieve its objectives. Directing guides towards achievement of common objectives. Through directing, managers not only tell the people in the organisation as to what they should do, when they should do and how they should do but also see that their instructions are implemented in proper perspective.

23. The Return on Investment (ROI) of a company ranges between 10 and 12% for the past three years. To finance its future fixed capital needs, it has the following options for borrowing debt: Option ‘A’: Rate of interest 9% Option ‘B’: Rate of interest 13% Which source of debt, ‘Option A’ or ‘Option B’, is better? Give reason in support of your answer. Also, state the concept being used in taking the decision.

Ans. Option ‘A’ is better. This is because in this option, Return on Investment (10-12%) is higher than the Rate of Interest (9%). The concept being used in taking the decision is trading on Equity.

Stelo Steel Ltd. is thinking of raising finance to further its projects overseas. For this the company is observing the other companies’ raising of finance. Their debt and equity ratios are being thoroughly studied by the financial experts of the company. Identify and explain the factor affecting the choice of capital structure.

Ans. The factor affecting the choice of capital structure is capital structure of other companies. A useful guideline in the capital structure planning is the debt equity ratios of other companies in the same industry. There are usually some industry norms which may help. Care however must be taken that the company does not follow the industry norms blindly. For example, if the business risk of a firm is higher, it cannot afford the same financial risk. It should go in for low debt. Thus, the management must know what the industry norms are, whether they are following them or deviating from them and adequate justification must be there in both cases.

24. “Controlling is an indispensable function of management. Without controlling the best of plans can go away “. Do you agree? Explain any three reasons in support of your answer.

Ans. Yes. Importance of controlling are:

(i) Accomplishing organisational goals: The controlling function measures progress towards the organisational goals and brings to light the deviations, if any, and indicates corrective action.

(ii) Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate and objective.

(iii) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms.

(iv) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they are appraised.

(v) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organisation.

(vi) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organisational goals.

“It is generally believed that measurement of performance should be done after the task is completed.” Identify and explain the step in the process of the function of management being discussed above and the next step followed by the same in the process.

Ans. Measurement of Actual performance: Performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. Wherever possible measurement of work should be done during the performance. Comparing actual performance with standards: This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms.

25. Explain any four factors that can affect the working capital requirements of a company.

Ans. Following are the factors affecting working capital requirement of a company:

(i) Nature of business: The basic nature of a business influences the amount of working capital required. A trading organisation usually needs a smaller amount of working capital as compared to a manufacturing organisation.

(ii) Scale of operations: For organisations which operate on a higher scale of operation, the quantum of inventory and debtors required is generally high. Such organisations, therefore, require large amounts of working capital as compared to the organisations which operate on a lower scale.

(iii) Business cycle: Different phases of business cycles affect the requirement of working capital by a firm. In case of a boom, the sales as well as production are likely to be larger and, therefore, a larger amount of working capital is required.

(iv) Seasonal factors: Most businesses have some seasonality in their operations. In peak season, because of higher levels of activity, larger amounts of working capital is required.

(v) Production cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished goods. Working capital requirement is higher in firms with longer processing cycle and lower in firms with shorter processing cycle.

(vi) Credit allowed: Different firms allow different credit terms to their customers. These depend upon the level of competition that a firm faces as well as the credit-worthiness of their clientele. A liberal credit policy results in increasing the requirement of working capital.

(vii) Operating efficiency: Firms manage their operations with varied degree of efficiency. Improved efficiency results in lower requirement of working capital.

(viii) Availability of raw material: Higher the quantity of material to be stored, higher the amount of working capital required.

(ix) Growth prospects: If the growth potential of a concern is perceived to be higher, it will require a higher amount of working capital.

(x) Level of competition: Higher level of competitiveness may necessitate higher stocks of finished goods to meet urgent orders from customers

Explain any four factors that affect the choice of capital structure of a company.

Ans. Following are the factors affecting capital structure of a company:

(i) Cash flow position: Size of projected cash flows must be considered before borrowing. Cash flows must not only cover fixed cash payment obligations but there must be sufficient buffers also.

(ii) Interest Coverage Ratio (ICR): The interest coverage ratio refers to the number of times earnings before interest and taxes of a company covers the interest obligation

(iii) Debt Service Coverage Ratio (DSCR): Debt Service Coverage Ratio takes care of the deficiencies referred to in the Interest Coverage Ratio (ICR). The cash profits generated by the operations are compared with the total cash required for the service of the debt and the preference share capital.

(iv) Cost of debt: A firm’s ability to borrow at a lower rate increases its capacity to employ higher debt. Thus, more debt can be used if debt can be raised at a lower rate.

(v) Tax rate: A higher tax rate makes debt relatively cheaper vis-a-vis equity.

(vi) Floatation cost: Process of raising funds involves some costs, these considerations may affect the choice between debt and equity, hence the capital structure.

(vii) Risk consideration: Business risk depends upon fixed operating cost. Fixed operating costs result in higher business risk and vice-versa. Total risk depends upon business risk and financial risk.

(viii) Flexibility: To maintain flexibility it must maintain some borrowing powers to take care of unforeseen circumstances.

(ix) Capital Structure of other companies: It has been observed that the capital structure of competing companies also affects the capital structure of the company in question.

(x) Stock Market Conditions: Stock market conditions often affect the choice between equity and debt. A bullish market encourages equity whereas during a bearish market, one has to opt for debt

26. ‘In an interview with a leading news channel, Mr. Rakesh Kwatra, CEO of ‘Get My Job’ has suggested that the companies which want more and more people to apply for jobs in their organisation should make the process of applying for jobs easier and candidate friendly.’ Name and explain the next two steps which follow the above mentioned step, in the process of the function of management being discussed above.

Ans. Selection: Selection is the process of choosing from the pool of prospective job candidates developed at the stage of recruitment. Even in case of highly specialised jobs where the choice is very narrow, the rigour of the selection process serves two important purposes:

(i) It ensures that the organisation gets the best among the available candidates.

(ii) It enhances the self-esteem and prestige of those selected and conveys to them the seriousness with which things are done in the organisation.

Placement and orientation: Orientation is introducing the selected employee to other employees and familiarising him with the rules and policies of the organisation. Placement refers to the employee occupying the position or post for which the person has been selected.

27. Explain the following rights of consumers provided by Consumer Protection Act, 2019:

(i) Right to safety

Ans. Right to safety: The consumer has the right to be protected against goods and services which are hazardous to life and health. For instance, electrical appliances which are manufactured with substandard components or do not conform to the safety norms might cause serious injury. Thus, consumers are educated that they should use electrical appliances which are ISI marked as this would be an assurance of such products meeting quality specifications

(ii) Right to consumer education

Ans. Right to consumer education: The consumer has the right to acquire knowledge and to be a well-informed consumer throughout his life. He should be aware of the rights and reliefs available to him in case of a product or service falling short of his expectations.

28. Identify and explain the two sources of recruitment which cannot be used when the existing staff is either insufficient or does not fulfil the eligibility criteria of the jobs to be filled.

Ans. Two such sources of internal recruitment:

(i) Promotion refers to shifting of an employee to a higher position, carrying higher responsibilities, facilities, status and pay.

(ii) Transfer involves shifting of an employee from one job to another, one department to another, without substantive change in the responsibilities and status of the employee.

Identity and explain the elements of directing mentioned below:

(i) Astha, a manager, has the ability to influence others to bring about a change in their behaviour.

Ans. i) Leadership: Leadership is the process of influencing the behaviour of people by making them strive voluntarily towards the achievement of organisational goals. Leadership indicates the ability of an individual to maintain good interpersonal relations with followers and motivate them to contribute for achieving organisational objectives.

(ii) Neeraj, a managing director, declares share in the profits to the manager for their contribution to increase profits of the company.

Ans. (ii) Motivation: Motivation means incitement or inducement to act or move. In the context of an organisation, it means the process of making subordinates to act in a desired manner to achieve certain organisational goals.

29. Pramod is a supervisor at ‘Shyam Breads and Biscuits Factory’. The factory produces 20,000 packets of bread and biscuits every day. As a supervisor, Promod ensures that work goes on smoothly and there is no interruption in production. He is a good leader who gives orders only after consulting his subordinates and working out the policies with the acceptance of the group. Identify and explain the leadership style being adopted by Pramod.

Ans. Democratic or participative leader: A democratic leader will develop action plans and make decisions in consultation with his subordinates. He will encourage them to participate in decision-making. This kind of leadership style is more common now[1]a-days, since leaders also recognise that people perform best if they have set their own objectives. They also need to respect the others opinion and support subordinates to perform their duties and accomplish organisational objectives. They exercise more control by using forces within the group.

30. Dheeraj wants to start a business of selling N-95 masks after the outbreak of the global pandemic of COVID-19. Due to uncertain market conditions he wants to make a low investment in fixed capital. Suggest how the decisions related to the choice of technique, and financing alternatives, can help Dheeraj in ensuring a low investment in fixed capital requirements.

Ans. Choice of technique: As he wishes to stick to a low investment model, we may suggest him to go with the labour-intensive approach to manufacture N-95 masks. Since, advanced technology would cost him more and his risk appetite is not conducive for capital intensive techniques of production. Financial alternatives: As he wishes to stick to a low investment model, we may suggest him to go with the lease option for fixed assets like building, heavy machinery, etc. as this may reduce his investment requirement in the business.

31. Kamal, Khan and David are partners in a firm engaged in the distribution of dairy products in Madhya Pradesh. Kamal is a holder of Senior Secondary School Certificate from Central Board of Secondary Education with Business Studies as one of his elective subjects. Khan had done his post-graduation in Hindi literature and David in Dairy Farming. One day there was a serious discussion between Khan and David regarding the nature of ‘Management as a Science’. Khan argued that Management was not a science whereas David was of the opinion that Management was a science. Kamal intervened and corrected both Khan and David about the nature of Management as a Science with the help of his knowledge of Business Studies. Explain, how Kamal would have been able to satisfy both Khan and David.

Ans. Kamal would have been able to satisfy both Khan and David by explaining the following features of Management as a Science:

(i) Systematised body of knowledge: Like science, management is a systematic body of knowledge with its own theories and principles that have been developed over a period of time. So, this feature of science is present in the management.

(ii) Principles based on observation and experimentation: Like science, management principles are derived through observation and repeated experimentation. So, this feature of science is present in management. However, since management deals with human beings the outcome of these experiments cannot be accurately predicted.

(iii) Universal validity: Principles of Management like principles of pure science provide managers with certain standardised techniques that can be used in different situations. Since they have to be modified according to a given situation, their application and use is not universal. So, this feature of science is not fully present in the management.

Through the above discussion Kamal would have been able to satisfy both Khan and David by making them understand that management is a science but not an exact science

32. “Planning is worth the huge costs involved?” Do you agree? Explain any five reasons in support of your answer.

Ans. Yes. Planning certainly involves a huge cost. However, the cost involved in planning is negligible when it is being compared to its importance. Below mentioned are a few factors due to which we can say that planning is a vital activity despite the huge costs:

(i) Planning provides direction: Planning ensures that goals or objectives are clearly stated so that they act as a guide for deciding what action should be taken and in which direction. If goals are well defined, employees are aware of what the organisation has to do and what they must do to achieve those goals.

(ii) Planning reduces the risks of uncertainty: Planning is an activity which enables a manager to look ahead and anticipate changes. By deciding in advance, the tasks to be performed, planning shows the way to deal with changes and uncertain events. Changes or events cannot be eliminated but they can be anticipated and managerial responses to them can be developed.

(iii) Planning reduces overlapping and wasteful activities: Planning serves as the basis of coordinating the activities and efforts of different divisions, departments and individuals. It helps in avoiding confusion and misunderstanding. Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions. Useless and redundant activities are minimised or eliminated.

(iv) Planning promotes innovative ideas: Since planning is the first function of management, new ideas can take the shape of concrete plans. It is the most challenging activity for the management as it guides all future actions leading to growth and prosperity of the business.

(v) Planning facilitates decision-making: Planning helps the manager to look into the future and make a choice from amongst various alternative courses of action. The manager has to evaluate each alternative and select the most viable proposition. Planning involves setting targets and predicting future conditions thus helping in taking rational decisions.

(vi) Planning establishes standards for controlling: Planning provides the goals or standards against which actual performance is measured. By comparing actual performance with some standard, managers can know whether they have actually been able to attain the goals. If there is any deviation it can be corrected. Therefore, we can say that planning is a prerequisite for controlling.

“If the project is important then more alternatives should be generated and thoroughly discussed amongst the members of the organisation.” Identify and explain the step in the process of planning being discussed above. Also, explain the remaining steps which will have to be carried out to complete the process.

Ans. Identifying alternative courses of action: Once objectives are set and assumptions are made, then the next step would be to act upon them. There may be many ways to act and achieve objectives. All the alternative courses of action should be identified. The course of action which may be taken could be either routine or innovative. An innovative course may be adopted by involving more people and sharing their ideas.

Remaining steps to be carried out to complete the process of planning are as follows:

(i) Evaluating alternative courses: The next step is to weigh pros and cons of each alternative. Each course will have many variables which have to be weighed against each other. The positive and negative aspects of each proposal needs to be evaluated in the light of the objective to be achieved.

(ii) Selecting an alternative: This is the real point of decision-making. The best plan has to be adopted and implemented. The ideal plan, of course, would be the most feasible, profitable and with least negative consequences. Most plans may not always be subjected to a mathematical analysis wherein the manager’s experience, judgement etc. plays a role while choosing the alternative.

(iii) Implementing the plan: This is the step where other managerial functions also come into the picture. The step is concerned with putting the plan into action by doing what is required.

(iv) Follow up action: To see whether plans are being implemented and activities are performed according to schedule is also a part of the planning process. Monitoring the plans is equally important to ensure that objectives are achieved.

33. ‘Advertising’ and ‘Personal selling’ both are communication tools used by the marketers to promote their products. Yet they differ in their approach. Differentiate between the two by giving any six points.

Ans.

S. No	Advertising	Personal Setting
(i)	Advertising is an impersonal form of communication	Personal selling is a personal form of communication.
(ii)	Advertising involves transmission of standardised messages, i.e., the same message is sent to all the customers in a market segment.	In personal selling, the sales talk is adjusted keeping view of customer’s background and needs.
(iii)	Advertising is inflexible as the message cannot be adjusted to the needs of the buyer.	Personal selling is highly flexible as the message can be adjusted.
(iv)	It reaches masses, i.e., a large number of people can be approached.	Only a limited number of people can be contacted because of time and cost considerations
(v)	In advertising the cost per person reached is very low.	The cost per person is quite high in the case of personal selling.
(vi)	Advertising can cover the market in a short time	Personal selling efforts take a lot of time to cover the entire market.
(vii)	Advertising makes use of mass media such as television, radio, newspaper and magazines.	Personal selling makes use of sales staff, which has limited reach.
(viii)	Advertising lacks direct feedback. Marketing research efforts are needed to judge customers’ reactions to advertising	Personal selling provides direct and immediate feedback. Sales persons come to know about the customers’ reactions during the interaction.
(ix)	Advertising is more useful in creating and building interest of the consumers in the firm’s products.	Personal selling plays an important role at the awareness stage of decision-making.
(x)	Advertising is more useful in marketing to the ultimate consumers who are large in numbers	Personal selling is more helpful in selling products to the industrial buyers or to intermediaries such as dealers and retailers who are relatively few in numbers.

“The elements of marketing mix are popularly known as 4 P’s of marketing.” Briefly explain these elements.

Ans. The marketing mix consists of various variables, which have broadly been classified into four categories, popularly known as four Ps of marketing. These are:

(i) Product

(ii) Price,

(iii) Place, and

(iv) Promotion.

(i) Product: Product means goods or services or ‘anything of value’, which is offered to the market for exchange. The concept of product relates to not only the physical product but also the benefits offered by it from the customer’s viewpoint (for example toothpaste is bought for whitening teeth, strengthening gums, etc.). The concept of product also includes the extended product or what is offered to the customers by way of after-sales services, handling complaints, availability of spare parts, etc. These aspects are very important, particularly in the marketing of consumer durable products (like automobiles, refrigerators, etc.). The important product decisions include deciding about the features, quality, packaging, labelling and branding of the products.

(ii) Price: Price is the amount of money customers have to pay to obtain the product. In case of most of the products, the level of price affects the level of their demand. The marketers have not only to decide about the objectives of price setting but to analyse the factors determining the price and fix a price for the firm’s products.

(iii) Place: Place or physical distribution includes activities that make firm’s products available to the target customers. Important decision areas in this respect include selection of dealers or intermediaries to reach the customers, providing support to the intermediaries (by way of discounts, promotional campaigns, etc.).

(iv) Promotion: Promotion of products and services include activities that communicate availability, features, merits, etc. of the products to the target customers and persuade them to buy it. Most marketing organisations undertake various promotional activities and spend a substantial amount of money on the promotion of their goods through using a number of tools such as advertising, personal selling and sales promotion techniques (like price discounts, free samples, etc.).

34. An important difference between S&M Ltd. and most other companies is that instead of operating as one large corporation, it operates as 180 smaller companies each focused on a specific product and area, implying selective dispersal of authority, recognising the decision-makers’ need for autonomy as decision-making authority is pushed down the chain of command. It enables the company to maintain short lines of communication with customers and employees, and accelerate the development of talent. Identify the philosophy that is being followed by S&M Ltd. through which it is dividing the decision-making responsibilities among the hierarchical levels. State any five points of importance of the philosophy identified.

Ans. Decentralisation

Importance of decentralisation:

(i) Develops initiative among subordinates: Decentralisation helps to promote self-reliance and confidence amongst the subordinates.

(ii) Develops managerial talent for the future: Formal training plays an important part in equipping subordinates with skills that help them rise in the organisation but equally important is the experience gained by handling assignments independently.

(iii) Quick decision-making: The management hierarchy can be looked upon as a chain of communication. In a decentralised organisation, however, since decisions are taken at levels which are nearest to the points of action and there is no requirement for approval from many levels, the process is much faster.

(iv) Relief to top management: Decentralisation diminishes the amount of direct supervision exercised by a superior over the activities of a subordinate because they are given the freedom to act and decide albeit within the limits set by the superior.

(v) Facilitates growth: Decentralisation awards greater autonomy to the lower levels of management as well as divisional or departmental heads. This allows them to function in a manner best suited to their department and fosters a sense of competition amongst the departments.

(vi) Better control: Decentralisation makes it possible to evaluate performance at each level and the departments can be individually held accountable for their results.

Class XII – Business Studies Practice Paper – 3 – Answers