Class XII - Business Studies Practice Paper - 5 - 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

Section – A

1. Identify the basic characteristic of management involved in this statement. “The activities involved in managing an organisation are common to all organisations, whether economic, social or political”.

(A) It is an intangible force.

(B) It is all-pervasive.

(D) None of these

2. ……………….. is concerned with doing the right task.

(A) Effectiveness

(B) Efficiency

(D) None of these

Identify the product-related decision illustrated by the picture given above, concerned with providing detailed information about the product on its package?

(A) Branding

(B) Packaging

(C) Labeling

(D) Both branding and packaging

4. “Management is a force that cannot be seen but its presence can be felt in the way the organisation functions.’’ Which feature has been explained in this statement of Management?

(A) Management is an intangible force.

(B) Management is all pervasive.

(D) Management is a group activity

5. ………………. is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively.

(A) Co-ordination

(B) Planning

(C) Management

(D) Organising

6. Savita joined ‘Aykaa Ltd.’ as Head of Production Department. In the past, the performance of the company was not so good. She analysed that production was not scientific. Then, she developed the best method using several parameters right from deciding the sequence of operations, place of men, machines and raw materials till the delivery of the product to the customers. Out of the following, identify the technique of scientific management followed by Savita.

(A) Motion study

(B) Fatigue study

(C) Method study

(D) Time study

7. A decision to acquire a new and modern plant to upgrade an old one is known as __________ decision.

(A) Financing decision

(B) Working capital decision

(C) Investment decision

(D) Dividend decision

8. “It is not a job which can be performed once and for all, but its need is felt at every step. Many activities are performed in a business. Sometimes or the other, if any one of the activities wavers either for more or less than required, the whole organisational balance is disrupted. Thus, a close watch has to be kept on all the activities to maintain the balance.” Identify the characteristic of coordination discussed above.

(A) Coordination ensures unity of action.

(B) Coordination is a deliberate function.

(C) Coordination is a continuous process.

(D) Coordination is an all-pervasive function.

9. ______________is the time span between the receipt of raw material and their conversion into finished goods.

(A) Production cycle

(B) Working Capital Management

(D) None of these

10. Which of the following statements is true?

(A) Asserting oneself to ensure that one gets a fair deal is the right of a consumer.

(B) Right to seek redressal entitles the consumer to get relief in case the product or service falls short of his expectation.

(D) A case decided by the District Commission, can be appealed before the Supreme Court.

11. Tomato Ltd., a food delivery service app has recently faced criticism for the tampering of their product, by their delivery boys. Tomato Ltd. decided to put a hologram seal on the food packets in order to protect the contents from spoilage, leakage, pilferage, damage, along with a tag with a safety warning for the consumers to check the seal. Which concept of marketing discussed above is performing the important function of communicating with the potential buyer and promoting the sale?

(A) Branding

(B) Product designing and development

(C) Labelling

(D) Grading

12. Match the decisions related to product in column I with their function in column II.

Column I	Column I
(A)	Advertising	(i)	Direct feedback
(B)	Personal selling	(ii)	Building corporate image
(C)	Public relations	(iii)	Mass reach

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

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

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

13. For the following two statements, choose the correct option: [1] Statement I: The market price of equity share increases, if the benefit from a decision exceeds the cost involved. Statement II: All financial decisions aim at ensuring that each decision is efficient and adds some value.

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

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

(C) Both the statements are correct.

(D) Both the statements are wrong

14. A company issued shares in primary market. Some investors complained that the shares purchased by them were not transferred to their Demat Account. Investors (shareholders) also found that no annual meeting was called by the company. Now, where should the shareholders go to save their interest?

(A) RBI

(B) IRDA

(D) SEBI

15. “This organisation structure allows flexibility and initiative.” Identify the type of organisation structure being discussed above.

(A) Divisional

(B) Functional

(D) None of these

16. A tea manufacturing company has put labels on its packets stating the variety of tea it is selling. Currently it has three varieties—red, green and black. The tea of the company comes from a garden in Assam which is 100 years old. So the price of the tea is high but recently in order to stay in the market it has lowered down its prices by 20%. The company sells its tea in different markets of the world. Next year the company is thinking of selling its tea in the markets of a nation having a very high population. The top management has not yet decided the type of channel it should choose. Two years back the company started selling its tea online; the decision brought an indirect change in one of the elements of the marketing mix and, of course, one element saw change directly. Which factor of price determination has affected the pricing of tea by the company?

(A) Extent of competition in the market

(B) Product cost

(D) Marketing methods used

17. Reema is one of the most successful managers of her company, Globe Ltd. She knows that the principles of management are intended to apply to all types of organisations, business as well as non-business, small as well as large, public sector as well as private sector. Identify the point related to the nature of management principles being highlighted in the above description.

(A) Universally accepted

(B) General guidelines

(D) Contingent

18. Huma is working in a company on a permanent basis. As per the job agreement, she had to work for 8 hours a day and was free to work overtime. Huma worked overtime, due to which she fell ill and had to take leave from her work. No one showed concern and enquired about her health. She realised that she was fulfilling only some of her needs while some other needs still remained to be fulfilled. Identify the needs of Huma which she is able to fulfil.

(A) Safety/Security needs

(B) Basic physiological needs

(C) Both (A) and (B)

(D) Esteem needs

19. Mrs. Rajlaxmi is working as the Human Resource Consultant in a firm manufacturing cosmetics, which is facing the problem of high employee turnover. The CEO of the company has invited suggestions from her for retaining the talented employees and reducing the employee turnover. Mrs. Rajlaxmi recommends that the efficient employees be rewarded in a way that it creates a feeling of ownership among the employees and at the same time, makes them contribute towards the growth of the organisation. Identify the incentive which has been suggested by Mrs. Rajlaxmi to the CEO of the company.

(A) Financial Incentive: Co-partnership/Stock option

(B) Financial Incentive: Profit sharing

(D) Non-financial Incentive: Job security

20. Suhasini, a home science graduate from a reputed college has recently done a cookery course. She wishes to start her own venture with the goal to provide ‘health food’ at reasonable prices. She discussed her idea with her teacher (mentor) who encouraged her. After analysing various options for starting her business venture, they shortlisted the option to sell ready-made and ‘ready to make’ vegetable shakes and sattu milk shakes. Then, they weighed the pros and cons of both the shortlisted options. Identify the function of management being discussed above.

(A) Planning

(B) Organising

(D) Directing

21. Satvik is the finance manager of Mars Ltd. He is facing difficulty in deciding the amount of profit earned by the company that should be distributed as dividend to the shareholders. In the current year, the company earned high profits. However, Satvik thinks that it is better to declare higher dividend as he is sure about the earning potential of the company in the coming years. Name and explain the factor that affected Satvik’s choice regarding dividend decision.

Ans. Stability of dividend Companies generally follow a policy of stabilising dividend per share. The increase in dividends is generally made when there is confidence that their earning potential has gone up and not just the earnings of the current year. In other words, dividend per share is not altered if the change in earnings is small or be temporary in nature.

22. How does directing help in efficient and effective functioning of the organisation? Explain by giving any two points.

Ans. Importance of Directing:

(i) Directing helps to initiate action in the organisation towards attainment of desired objectives.

(ii) Directing integrates employees’ efforts in the organisation in such a way that every individual effort contributes to the organisational performance.

(iii) Directing guides employees to fully realise their potential and capabilities through motivation and effective leadership.

(iv) Directing facilitates introduction of needed changes in the organisation.

(v) Effective directing helps to bring stability in the organisation.

How are employees motivated to improve their performance when the organisation uses internal sources of recruitment? State.

Ans. Employees are motivated to improve their performance by promoting them to higher level jobs or positions because a promotion at higher level may lead to a chain of promotions at lower levels in the organisation.

23. ‘Management should achieve its objectives effectively and efficiently’. Do you agree with this statement? If yes, present a comment in favour of your answer.

Ans. Yes, it is important for the management to achieve its objectives effectively and efficiently. Effectiveness and efficiency are two sides of the same coin.

(i) Efficiency: It means performing the tasks correctly with the minimum cost. It involves an input-output relationship.

(ii) Effectiveness: It means finishing the tasks on time. It involves doing the required tasks, completing activities and achieving goals on time.

Management has to balance these two aspects. It has to achieve goals effectively on time with optimum utilisation of scarce resources.

‘Every organisation has a set of economic and social goals and management unites the efforts of different individuals in the organisation towards achieving these goals.’ Identify and explain the feature of management stated in the above lines.

Ans. Goal oriented process

An organisation has a set of basic goals which are the reason for its existence. These should be simple and clearly stated. Different organisations have different goals. For example, the goal of a retail store may be to increase sales, but the goal of the Spastics Society of India is to impart education to children with special needs. Management unites the efforts of different individuals in the organisation towards achieving these goals.

24. Astra Builders has to deliver the flats to its buyers on time. Due to this there is a sudden rush of work. Therefore, the company needs to arrange workers to work at the sites at a short notice. Suggest the source of recruitment which may be used by the company to tap the casual vacancy. Also explain any two other sources which the company might use if there was no rush of work.

Ans. Direct recruitment: Under the direct recruitment, a notice is placed on the notice board of the enterprise specifying the details of the jobs available.

Other sources:

(i) Casual callers: It is an external source of recruitment in which a list of job seekers is prepared and screened to fill the vacancies as they arise, from the database of unsolicited applications kept in the office.

(ii) Labour contractors: It is an external source of recruitment in which a labour contractor maintains close contacts with labourers and provides the required number of unskilled workers at short notice.

(iii) Advertisement: Advertisement in media is generally used when a wider choice is required. Example – Newspapers, Internet, Radio, Television, etc.

25. What is meant by ‘consumer’ as per the provisions of Consumer Protection Act, 2019?

Ans. Under the Consumer Protection Act, a consumer is defined as:

(i) Any person who buys any goods for a consideration, which has been paid or promised, or partly paid and partly promised, or under any scheme of deferred payment. It includes any user of such goods, when such use is made with the approval of the buyer, but does not include a person who obtains goods for resale or any other commercial purpose.

(ii) Any person who hires or avails of any service, for a consideration which has been paid or promised, or partly paid and partly promised, or under any system of deferred payment. It includes any beneficiary of services when such services are availed of with the approval of the person concerned, but does not include a person who avails of such services for any commercial purpose.

26. What is meant by ‘Capital Structure’? Explain any three factors that affect the capital structure of a company.

Ans. The capital structure means the proportion of debt and equity used for financing the operations of a business.

Following are the factors affecting the choice of capital structure of a company:

(i) Cash flow position: Decision regarding capital structure depends upon the ability of business to generate enough cash flow. If company is sure of generating enough cash flow, it may have more of debt securities whereas if there is shortage of cash, it may go for equity.

(ii) Interest Coverage Ratio (ICR): It shows how many times the earnings before interest and tax is available to the payment of interest. Higher ICR means company has less of borrowed funds whereas, it is possible that inspite of better ICR the cash flow position of the company may be weak.

(iii) Debt Service Coverage Ratio (DSCR): It is one step ahead of ICR. It takes care of return of interest as well as principal repayment. Higher DSCR means, the company can have more of debt and lower DSCR means, the company should go for equity capital.

(iv) Return on investment: If return on investment is more than rate of interest then company can prefer debt in its capital structure but if return on investment is less than rate of interest then, company should prefer equity as it will not be able to pay interest. (v) Cost of debt: If rate of interest is less, i.e., cost of debt, more debt can be utilised in the capital structure. (vi) Tax rate: Interest on debt is tax-deductible, which makes debt cheaper. So, high-end tax means preference equity in capital structure.

(vii) Cost of equity: More of debt capital increases the cost of equity as it increases the risk of the equity shareholders. So, debt should be used to a limited extent as increased cost of equity adversly affects the market value of shares.

Explain any four factors that affect the fixed capital requirements of a company.

Ans. Factors that determine the fixed capital requirement of the company are:

(i) Nature of business: A trading concern needs a lower investment in fixed assets as compared to a manufacturing concern since it does not require to purchase plant and machinery.

(ii) Scale of operations: A larger organisation operating at a higher scale needs bigger plant and more space and hence higher investment in fixed assets.

(iii) Choice of technique: A capital intensive organisation requires higher investment in plant and machinery and thus requires higher fixed capital than a labour intensive organisation.

(iv) Technology upgradation: Industries where assets become obsolete sooner requires higher fixed capital to purchase such assets.

(v) Higher growth prospects: Higher growth prospects require higher investment in fixed assets to meet anticipated demand quickly.

vi) Availability of financing alternatives: Leasing requires lower investment in fixed assets and hence requires less fixed capital.

(vii) Collaboration: Collaborating with other firms reduces the level of investment in fixed assets.

27. “Under this style of leadership, the leader consults subordinates in the decision-making process and encourages them to give suggestions in the setting of goals and in the implementation of decisions.” Identify and explain the style of leadership stated above.

Ans. Democratic leadership or participative leadership

(i) This style of leadership wins greater confidence, cooperation, loyalty and initiatives of the group.

(ii) It is suitable when juniors are competent enough to participate in discussion and handle assigned task on their own.

(iii) Though subordinates participate in the decision[1]making process, the final decision lies with the leader.

An element of the directing function seeks to provide inducement to employees to act in a particular manner. Identify and explain this element. Can this inducement be in a negative manner also? If yes, give example.

Ans. Element: Motivation

Motivation means stimulating people to act in a desired manner to achieve certain organisational goals.

Yes, motivation can be negative. It is the process of motivation through punishment for poor performance.

Example: Threat of demotion, suspension and termination to those employees who are shirker by nature to encourage them to work more.

28. Identity and explain the elements of directing mentioned below:

(i) Rajeev is an HR manager leading a team of 12 people. He knows that the duties and responsibilities of an HR employee are challenging. He knows that in order to make his team work with a positive frame of mind, he will have to set a personal example as a role model and influence their behaviour and working style to increase the output of his team.

(ii) Priya and Raghav are discussing about an element of directing. They say that without this element no group or people can achieve a common understanding. This element requires effort from both the sides and consumes 90% of the time of a manager.

Ans. (i) Leadership: Leadership is the process of influencing the behaviour of people by making them strive voluntarily towards the achievement of organisational goals.

(ii) Communication: Communication is a process by which people create and share information with one another in order to reach at a common understanding.

29. Rudrakshi Ltd. is engaged in manufacturing high end luxury pens. The target production is 700 units daily. The company had been successfully attaining this target until three months ago. Over the last few months, it has been observed that daily productions varies between 600 and 650 units.

(i) Identify the function of management which has been highlighted in the above context.

(ii) Discuss the first three steps involved in the process of the function identified above.

Ans. (i) Controlling

(ii) Following are the first three steps involved in the controlling process:

(a) Setting Performance Standards: The first step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured. Thus, standards serve as benchmarks towards which an organisation strives to work. Standards can be set in both quantitative as well as qualitative terms.

(b) Measurement of Actual Performance: Once performance standards are set, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. These include personal observation, sample checking, performance reports, etc. As far as possible, performance should be measured in the same units in which standards are set as this would make their comparison easier.

(c) 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.

30. Zintax Ltd. is engaged in the business of export of leather shoes. In the past, the performance of the company had been upto the expectations. In line with the latest demand in the market, the company decided to venture into sports goods and sneakers for which it required specialised machinery. For this, the Finance Manager Ritesh prepared a financial blueprint of the organisation’s future operations to estimate the amount of funds required and the timings with the objective to ensure that enough funds are available at the right time. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business. For the remaining funds, he is trying to find out alternative sources from outside.

Identify the financial concept discussed in the above paragraph. Also, explain any two the objectives to be achieved by the use of financial concept so identified.

Ans. Financial Planning

Financial planning objectives of financial planning:

(i) Ensures availability of adequate funds at the right time: This includes a proper estimation of funds required for different purposes such as for the purchase of long-term assets or to meet day-to-day expenses of business. It estimates the time at which the funds are to be made available. Based on these facts, funds could be raised from short-term and long-term sources.

(ii) Sees that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. So, the financial manager must see to it that the company does not raise more capital than the requirement of the business. In case, there is surplus cash or liquidity, the excess funds should be utilised judiciously

31. National Viritech Ltd. has grown in size. It was a market leader but with changes in business environment and with the entry of MNCs its market share is declining. To cope with the situation, CEO starts delegating some of his authority to the General Manager, who also felt overburdened. GM also disperses some of his authority to various levels throughout the organisation with the approval of CEO. Identify the concept of management discussed above. Explain any five points of importance of the concept identified in (i) above.

Ans. Decentralisation

Importance of Decentralisation is explained as follows:

(i) Relief to top management: In a Decentralised organisation, top managers are not burdened by common day-to-day problems. They have enough time to plan ahead and develop new strategies.

(ii) Develops managerial talent for the future: In a decentralised organisation, even lower level managers learn the art of exercising decision making authority. This prepares them for the promotion to the higher levels.

(iii) Quick decision making: In a decentralised organisation, decision making is not restricted in few hands only but decision power is entrusted with all the managers who perform the activities.

(iv) Develops initiative amongst subordinates: Decentralisation helps to promote self-reliance and confidence amongst the subordinates. They learn to depend on their own judgement.

(v) Facilitates growth: Decentralisation provides 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. Consequently, the productivity levels increase and the organisation is able to generate more returns which can be used for growth and expansion purposes.

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

32. ‘Organising helps in the growth and survival of an enterprise in a dynamic environment.’ Do you agree? Explain any six reasons in support of your answer.

Ans. The importance of organising can be described as follows:

(i) Benefits of specialisation: In organising, the whole work is divided into manageable activities and systematic allocation of work is done. It increases the productivity and efficiency of workers. As a result, due to repetitive work, workers get experience in particular fields which leads to specialisation.

(ii) Adaptation to changes: It facilitates business enterprise to accommodate changes in the workload caused by business environment. In case of change, organising paves the way for revision of relationships at organisational levels.

(iii) Clarity in working relationships: Authority and responsibility are clearly defined in such a way that every person knows as to who is reporting to whom and for what, etc.

(iv) Optimum utilisation of resources: Proper allocation of resources helps in avoiding overlapping of work and ensures optimum use of all human, physical and financial resources.

(v) Effective administration: By clearly describing the jobs related duties, duplication of work and confusion can be avoided in the organisation. Thus, it ensures effective administration.

(vi) Development of the personnel: Delegation of authority reduces the work load of a manager and enables him to explore new areas of growth for his organisation. It enables the subordinates to effectively deal with the challenges and to realise their full potential.

(vii) Expansion and growth: Organising enables an enterprise to take up new challenges. For example, more job positions, departments, new product lines, new geographical territories, etc. to increase sales/ profits, market share and growth of the enterprise.

‘The function of organising is to arrange, direct, coordinate, and control the activities of an enterprise.’ In the light of this statement, explain the meaning of organising and various steps in the process of organising.

Ans. Organising is the management function of assigning duties, grouping tasks, establishing authority and allocating resources to carry out a specific plan.

Organising as a process involves following steps:

(i) Identification and division of work: The first step in the organising process is identifying and dividing the whole work into manageable activities, so that duplication of work can be avoided and the burden of work can be reduced.

(ii) Departamentalisation: Departamentalisation refers to the process of grouping the activities of similar nature under the same department. Departmentalisation can be done on the basis of function, type of product, territory, etc., It facilitates specialisation in an organisation.

(iii) Assignment of duties: This implies assigning duties to the workers according to their abilities and competencies. For getting the best results, a proper match should exist between the nature of work and ability of the individual.

(iv) Establishing reporting relationships: Next step is to allocate authority and responsibility among employees in such a way that each person knows who is reporting to whom and for what, etc.

33. ‘Scientific Management means knowing exactly what you want your men to do and seeing that they do it in the best and the cheapest way’. Taylor developed various techniques for application of scientific management principles and was able to achieve a three-fold increase in productivity in Bethlehem Steel Company, where he worked. One of the techniques helps to determine the number of workers to be employed; frame suitable incentive schemes and determine labour costs.

Another technique recognises those workers who are able to accomplish/exceed the fair day’s work and is based on the premise that efficiency is the result of the joint efforts of the managers and the workers.

Quoting the lines from the above paragraph, identify and explain the two techniques of scientific management.

Ans. The two techniques of scientific management are:

(i) Time study

Line – one of the techniques helps to determine the number of ……………. labour costs

(ii) Differential piece wage rate system

Line – Another technique recognise ………………. the workers

(i) Time study: It is a technique which is used to determine the standard time taken by a worker to perform a well-defined job. It determines how much work an employee should be able to do in a given period of time.

34. Explain any six characteristics that you will keep in mind while choosing a brand name.

Ans. The objectives of time study are:

(a) To determine the number of workers required to do a job.

(b) To determine standard time required to perform a job.

(c) To categorise the workers in efficient and inefficient categories.

(d) To determine the cost of labour.

(ii) Differential piece wage system: According to this, there are different rate of wage payment, higher rate for the efficient members who perform above the standard and lower rate for those who perform below the standard.

(a) This technique is the strongest motivator for a worker to reach standard performances.

(b) This system emphasises on paying different rates of wages for efficient and inefficient employees.

(c) In this two different wage rates are used: one is the higher wage rate and the other is the lower wage rate and the basic aim of fixing two different rates is to differentiate between efficient and inefficient workers and to suitably reward the efficient workers.

(d) Higher wage rates are fixed for those workers who produce equal to or more than the standard output and lower wage rates are fixed for those workers who do not reach the standard output.

Explain the four important elements of marketing mix.

Ans. A good brand name should contain the following characteristics:

(i) Simple and short: A brand name should be simple and short so that there is no complication related to its name.

(ii) Easily pronounceable: A brand name should be easily pronounceable e.g., TATA, GLUCOSE, etc.

(iii) Suggestive: Brand name should be self-explanatory thereby, suggesting the inherent quality of the product. For example, HAJMOLA indicates the curing of indigestion.

(iv) Distinctive: Brand name should be so distinctive that it highlights itself in the group of other brand names, such as Tide, Rin, Surf Excel, etc.

(v) Stability: The brand name should have a stable life, its life should not be affected by the changes in fashion or style. Phillips, Bournvita, Saridon, Surf, and HMT are some of the examples in this regard.

(vi) Registration: The brand name should be capable of being registered. This will protect the brand holder from imitation by the rivals.

Class XII – Business Studies Practice Paper – 5 – Answers