Question

Paper 2014 Delhi Set-2

CBSE Class-12 Business Studies

General Instruction:

Answers to questions 1 to 12 carrying 1 marks mark may be from one word to one
sentence
Answers to questions 13 to 18 carrying 3 marks may be from 50-75 words.
Answers to questions 19 to 22 carrying 4 marks may be from 50-75 words.
Answers to questions 23 to 26 carrying 5 marks may be about 150 words.
Answers to questions 27 to 30 carrying 6 marks may be about 200 words
Attempt all parts of question together.

Q1. Give the meaning of ‘Authority’ as an element of delegation.

Ans. Authority refers to the right of an individual to command his subordinates and to take
action within the scope of his position.

Q2. State any one advantage of ‘Formal Organisation’.

Ans. Advantages of formal organisation (Any one):
(i) It is easier to fix responsibility.
(ii) It avoids duplication of efforts.
(iii) It maintains unity of command
(iv) It leads to effective accomplishment of goals.
(v) It provides stability to the organisation.

Q3. Give the meaning of ‘Policy’ as a type of plan.

Ans. Policy is a general guideline which brings uniformity in decision making for
achievement of predetermined objectives.

Q4. What is included in ‘Political Environment of business? State.

Ans. Political environment includes political conditions such as general stability and peace
in the country and specific attitudes that elected government representatives hold towards
business.

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Q5. What is the objective of ‘Method Study’ as a technique of scientific management?
Ans. The objective of method study is to find out one best way of doing the job.

Q6. What is meant by ‘management of people’?

Ans. Management of people means dealing with employees as individuals with diverse needs
and behaviour as well as dealing with individuals as a group of people.

Q7. How does ‘Inflation’ affect the working capital requirements of a company? State.
Ans. With inflation, the working capital requirements become higher as larger amount of
money is required to maintain a constant volume of production and sales.

Q8. Define ‘Capital Structure’.

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

Q9. What is meant by ‘Encoding’ as an element of communication?

Ans. Encoding means converting the message into communication symbols such as words,
pictures, gestures, etc.

Q10. Give an example of ‘Employee Recognition Programmes’ as a non financial

incentive.
Ans. Examples of ‘Employee Recognition Programmes are:
(i) Congratulating the employees for good performance.
(ii) Displaying employees achievements on the notice board or company’s newsletter.
(iii) Awarding best performance

Q11. “Recruitment’ is one of the specialized activity performed by human resource

management. Mention any two other specialized activities of human resource
management.
Ans. Other specialized activities of human resource management are: (Any two)
(i) Analysing jobs.
(ii) Selection.
(iii) Placement and orientation.
(iv) Training and development of employees.
(v) Performance Appraisal.
(vi) Developing compensation and incentive plans.

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(vii) Maintaining labour relations and union management relations.
(viii) Handling grievances and complaints.
(ix) Providing for social security and welfare of employees.
(x) Defending the company in law suits and avoiding legal complications.

Q12. Why employees become lethargic when the organisation uses internal sources of
recruitment? State.
Ans. Employees become lethargic when the organisation uses internal sources of
recruitment as they are sure of time bound promotions.

Q13. Crackers Ltd., a fire cracker manufacturing company launched some new
products on eve of Diwali which attracted many buyers. To meet the increased demand,
the company employed children from nearby villages. Although the
product was in great demand, appropriate safety warnings were not mentioned on the
packets that led to many accidents.
(i) Identify and explain the important product related decision that was not taken into
consideration by the company
(ii) Also, identify any two values which were violated by the company.
Ans. (i) The important product related decision that was not taken into consideration by the
company is Labelling.
It is the process of designing the label and putting it on the package to provide information
regarding the product, its contents, methods of use etc.
(ii) Values violated by the company:
-concern for safety of human beings.
-respect for law (employing children as labour).
-concern/ sensitivity for the environment.

Q14. ‘Financial market plays an important role in the allocation of scarce resources in
an economy by performing various functions.’ Explain any three functions of financial
market.
Ans. Financial market plays an important role in the
allocation of scarce resources in an economy by performing the following functions:
(i) Mobilisation of savings and channelising them into most productive use.
(ii) Facilitating price discovery.
(iii) Providing liquidity to financial assets.

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(iv) Reducing the cost of transactions.

Q15. Rahim was working in an enterprise on daily wages basis. It was difficult for him
to fulfill the basic needs of his family. His daughter fell ill. He had no money for his
daughter’s treatment. To meet the expenses of her treatment, he participated in a cycle
race and won the prize money. The cycle company offered him a permanent
pensionable job which he happily accepted.
(i) By quoting the lines from the above para identify the needs of Rahim that are
satisfied by the offer of cycle company.
(ii) Also, explain two other needs of Rahim followed by above that are still to be
satisfied.
Ans. (i) Needs of Rahim that are satisfied by the offer of cycle company are Physiological
needs and Safety/ security needs ‘The cycle company offered him a permanent pensionable
job’.
(ii) The other needs followed by the above stated needs that are still to be satisfied are:
(a) Affiliation/ Belongingness needs.
These needs refer to the need for affection, sense of belonging, acceptance and friendship.
(b) Esteem needs These needs refer to the need for self respect, autonomy status, recognition
and attention.

Q16. How directing helps in efficient and effective functioning of the organisation?
Explain by giving any three points.
Ans. Directing helps in efficient and effective functioning of the organisation because:
(i) It helps to initiate action.
(ii) It integrates employees’ efforts.
(iii) It guides employees to realise their potential.
(iv) It facilitates changes.
(v) It brings stability and balance in the organisation.

Q17. State any three points of importance of consumer protection from the point of
view of consumers.
Ans. Importance of Consumer protection from the point of view of consumers:
(i) It educates consumers about their rights and reliefs available to them.
(ii) It organises consumers in the form of consumer organisations which would take care of

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their interests.
(iii) It protects consumers against exploitative and unfair trade practices.

Q18. Explain the following rights of consumers:

(i) Right to be informed:
(ii) Right to safety.
Ans. (i) Right to be Informed The consumer has a right to have complete information about
the product he intends to buy such as, ingredients, date of manufacture, price,
quantity etc.
(ii) Right to safety Right to be protected against goods and services which are hazardous to
life and those which do not conform to the safety norms.

Q19. How is training of employees beneficial for the organisation? State by giving any
four reasons.
Ans. Training of employees is beneficial for the organisation as:
(a) It avoids wastage of efforts and money.
(b) It enhances employee productivity.
(c) It equips the future manager to take over in an emergency.
(d) It reduces employees’ turnover.
(e) It helps the employees to adopt the new/latest technology.

Q20. Explain any four points that highlight the importance of financial planning.
Ans. Financial planning is important to:
(i) Prepare for the future.
(ii) Avoid business shocks and surprises.
(iii) Coordinate various business functions.
(iv) Reduce waste and duplication of efforts.
(v) Link the present with the future.
(vi) Link investment and financing decisions.
(vii) Evaluate actual performance.

Q21. XYZ Power Ltd. set up a factory for manufacturing solar lanterns in a remote
village as there was no reliable supply of electricity in rural areas. The revenue earned
by the company was sufficient to cover the costs and the risks. The demand of lanterns
was increasing day by day, so the company decided to increase production to generate

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higher sales. For this, they decided to employ people from nearby villages as very few
job opportunities were available in that area. The company also decided to open
schools and crèches for the children of its employees.
(i) Identify and explain the objectives of management discussed above.
(ii) State any two values which the company wanted to communicate to the society.
Ans. (i) The objectives of management referred to are:
Organisational objectives
These refer to the utilisation of human and material resources considering the interest of all
stakeholders.
(b) Social objectives
These refer to the creation of benefit for various constituents of the society.
(ii) Values which the company wanted to communicate to the society are:
(a) Providing employment opportunities.
(b) Development of backward regions.
(c) Providing basic amenities to employees.
(d) Concern for the environment.

Q22. Why is the understanding of business environment important for managers?

Explain with the help of any four points.
Ans. Understanding of business environment is important for managers to:
(i) Identify opportunities and get the first mover advantage.
(ii) Identify threats and early warning signals.
(iii) Tap useful resources.
(iv) Cope with rapid changes.
(v) Assist in planning and policy formulation.
(vi) Improve performance.

Q23.State any five features of planning.

Ans. Planning states in advance where to go and in which direction to move ahead. It is a
continuous process that helps in reducing the risk of uncertainty. Planning is an essential
activity that provides the rationale for undertaking policies in the direction of achieving
goals.

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Following are the features of planning.
(i) Focus on objectives: Planning serves the basis for guidelines for what goals are to be
achieved and how they are to be achieved. Any management should formulate plans keeping
in view the specific goals in mind. These plans must ensure that the desired objective is
attained. The managers must make sure that the plans made are purposeful. For example, if
the sales target is to be achieved, then the plans must be made in sync with this objective.
(ii) Stepping stone: Planning serves as the stepping stone for all other functions of an
organisation. That is, planning precedes all other functions such as organising, directing,
staffing and controlling. This is because plans state the objectives and all other functions are
in accordance with the said objectives. Once the plans are determined, the roles of other
interrelated functions come into place. Thus, planning sets the basis for other functions of an
organisation.
(iii) Pervasiveness: Planning must be done at all levels of the organisation. It is not a
function of just the top level managers. It is a function to be performed at every level of
management. However, its scope differs along the various dimensions of business. For
example, the top level managers have to chalk out the policies regarding the overall
management, whereas the middle level managers plan out the authority to be assigned to the
subordinates. On the other hand, the lower level managers make out small targets for day-to-
day working.
(iv) Continuity: Planning should be done continuously. This is because after the completion
of one plan period, need arises for formulation of another plan, keeping in view the new
objectives and circumstances. Moreover, within a plan period, need arises to modify the
plans as per the changing needs and requirements. Thus, planning does not have an end. It is
a continuous process all along the life of a business enterprise.
(v) Choice making: Planning is a process of making choices amongst the different
alternatives for the attainment of the desired objectives. These alternatives are based on the
path to be taken, strategies or policies to achieve the goals, etc. Managers need to evaluate
these choices thoroughly and then select the most rational scheme to achieve the set
objectives.
(vi) Futuristic: Planning must be futuristic in nature. That is, it must be able to foresee and
analyse the future. Planning should be done so as to prepare the organisation to deal with
the future events. Managers must be able to anticipate the probable situations and plan so as
to cope with them in a better manner.

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Q24. Principles of Taylor and Fayol are mutually complementary. One believed that the
management should not close its ears to constructive suggestions made by the
employees while the other suggested that a good company should have an employee
suggestion system whereby suggestions which result in substantial
time or cost reduction should be rewarded. Identify and explain the principles of
Taylor and Fayol referred in the above para.

Ans. (i) The principle of Taylor referred to is

Cooperation, Not Individualism
It states that there should be complete cooperation between the labour and the management.
Competition should be replaced by cooperation.
(ii) The principle of Fayol referred to is Initiative It indicates that the subordinates should be
encouraged to make and execute plans within the prescribed limits of authority

Q24. Differentiate between ‘capital-market’ and ‘money-market’ on the following basis:

(i) Participants; (ii) Instruments; (iii) Investment outlay; (iv) Duration and (v) Liquidity.

Ans. Difference between Capital Market and Money

Market:

Basis Capital Market Money Market

The participants are financial

The participants are RBI,
institutions, banks,
1. Participants financial institutions, banks,
corporates, foreign investors and
corporates,
retail investors.

Instruments traded are treasury

2. Instruments traded are shares, bill, commercial paper, certificates of
Instruments debentures and bonds. deposit, call money and commercial
bill,

3. Investment
Investment outlay is small. Investment outlay is large.
outlay

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 It deals in medium term and long
4. Duration It deals in short term securities
term securities.

Capital market securities are Money market securities

5. Liquidity
comparatively less liquid. are comparatively more liquid.

Q25. Explain ‘Price’ as an element of marketing– mix. Also, explain any four factors that affect

the fixation of price of a product.

Ans. Price as an element of marketing mix involves decisions regarding pricing objectives,
pricing Methods, pricing strategies, pricing policies and price changes.
Factors that affect the fixation of price of a product are:
(a) Product cost
(b) Utility and demand
(c) Extent of competition in the market,
(d) Government and legal regulations.
(e) Pricing objectives.
(f) Marketing methods used

Q26. Differentiate between 'capital-market' and 'money-market' on the basis of :

(i) Safety;
(ii) Expected return;
(iii) Meaning;
(iv) Instruments and
(v) Duration.

Ans.

Basis Capital Market Money Market

Securities involve a greater risk Securities are less risky due to the short
1. Safety in terms of repayment of the time period and sound financial position
principal amount. of the issuers.

The expected returns are higher

The expected returns are lower due to the
2. Expected due to the possibility of capital
shorter duration of the instruments.
return gains in the long term and

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 regular dividends or bonus.

The capital market refers to the

The money market refers to the market
market or the institutional
where trading in short-term securities of
3. Meaning facilities through which long-
maturity periods (varying from one day to
term funds are raised and
a maximum of one year) takes place.
invested.

Instruments traded consist of

Instruments traded consist of treasury
4. equity shares, preference
bills, commercial bills, certificates of
Instruments shares, debentures, bonds and
deposits and other short-term securities.
other long-term securities.

Securities traded are of medium

Securities traded are only of short-term
term and long term wherein the
5. Duration wherein the maturity period can vary
maturity period is of more than
from one day to a maximum of one year.
one year.

Q27. Explain the various steps in the process of controlling.

Ans. Steps in the process of controlling:
(i) Setting performance standards.
(ii) Measurement of actual performance.
(iii) Comparison of actual performance with the standards and analysing deviations.
(iv) Taking corrective action.

OR

Q. Explain any four points that highlight the importance of controlling.

Ans. Importance of controlling: (Any four)
(i) Accomplishing organisational goals.
(ii) Judging accuracy of standards.
(iii) Making efficient use of resources.
(iv) Improving employee motivation.
(v) Ensuring order and discipline.
(vi) Facilitating coordination in action

Q28.Explain the following functions of marketing:

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(i) Gathering and analysing market information
(ii) Marketing planning
(iii) Customer support services and
(iv) Physical distribution.

OR

'Though advertising is one of the most frequently used medium of promotion of goods
and services, it attracts lot of objections.' Explain any four such objections.

Ans. i. Gathering and analysing market information: Marketers gather important market
information so as to appropriately identify the needs of the customers. This helps the firm to
identify and analyse the various business opportunities and threats.
ii. Market planning: Market planning is the basic function of marketing. Marketers plan the
various steps required to achieve the goals and objectives of marketing. In order to do so,
they conduct a market research to analyse the needs and preferences of the customers.
Market research helps marketers to develop a suitable plan, covering decisions related to the
production of a product and its promotion, to increase the number of customers.
iii. Customer support services: Support services involve handling complaints and feedback
of the customers. Organisations develop customer care services such as credit services,
maintenance services and technical services. These services are provided with the sole aim
of increasing customer satisfaction. Good quality support services help develop brand loyalty
among customers and ensure repeat sales.
iv. Physical distribution: This element of the marketing mix basically deals in the
movement of finished goods and services from producers to consumers, through middlemen
and intermediaries. During this phase, the firms undertake different distribution channels
such as zero level, first level, etc., depending on the type and nature of the goods produced.
The choice of appropriate distribution channel holds prime importance, as opting for an
inappropriate distribution channel may either unnecessarily raise the price of the good or
deteriorate the quality of the product.

OR

Though advertising is one of the most frequently used medium for promotion of goods and
services, it attracts a lot of objections.

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Some objections to advertising are:
i. Increases cost: It is believed that advertisement expenses add to the cost of the company,
which is passed on to the consumers in the form of higher prices. However, supporters of
advertisement argue that it brings down the per unit cost of production. This is because
advertisement attracts a greater number of customers towards the product, leading to an
increase in the demand for the product. In response to the increased demand, the
manufacturers increase production. With the increased production, the per unit cost of
production comes down. Thus, it can be said that though advertisement expenses add to the
cost, the increased cost can be compensated through a fall in the per unit cost, resulting from
the increased demand and production.
ii. Weakens social values: One of the major criticisms of advertising is that it weakens social
values and promotes materialism in the society. Advertisement attracts customers towards
new products and induces them to purchase it. With the increased awareness about the
availability of new products, the customers feel dissatisfied about what they currently have.
In the process, they often end up buying what they don’t even require. However, this series
of discontentment and purchase of new products is a never ending cycle which also
increases materialism.On the other hand, it is argued that advertisements just inform the
buyers about the availability of various products and the final decision to purchase the
product rests with the consumer. Advertisement increases the knowledge of the customers
and keeps them informed.
iii. Creates confusion: It is argued that a large number of advertisements on similar
products confuse the customers. For example, advertisements of different hair oil companies
claim to provide healthy and long hair by the use of their product. Because of numerous
advertisements, a consumer gets confused as to which product and of which brand he should
purchase.On the contrary, supporters of advertisement do not agree with this criticism. They
argue that advertisement provide a choice to the consumers. The consumers can make a
rational choice for themselves after analysing various factors such as price, style, quality, etc.
iv. Promotes inferior goods: It is argued that products of both superior quality as well as
inferior quality are advertised. Through advertisement, demand for inferior goods can also
be induced. However, such a claim is only partially true. This is because quality is a relative
concept. What is inferior to one consumer can be superior to another. Advertisements
promote all kinds of products and the consumers purchase a product only if it suits their
requirements.

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Q29. With the help of any four points, explain the importance of 'delegation' in an
organisation.

OR

Explain the concept of 'functional structure'. Also, explain any four disadvantages of
functional structure.

Ans. Delegation implies transfer of authority from a superior to a subordinate. It is a process

that lowers the burden on the manager and allows him to extend his area of operations by
delegating work to subordinates. In addition, delegation provides the subordinates with
higher opportunities for growth and development. By allowing the subordinates to show
their skills and to exercise initiative, delegation helps in building efficiency.
The following points highlight the importance of delegation:
i. Managerial efficiency: Delegation of work to subordinates allows the superior to
concentrate on important areas of concern. That is, with the delegation of routine work to
subordinates, managers will be able to focus on higher priority areas. Besides, delegation
provides the managers with the opportunity to explore new methods of working and this
helps improve the overall working efficiency.
ii. Employee proficiency: By delegating work, a manager empowers his subordinates by
providing them with opportunities to apply their skills. Therefore, the subordinates get a
chance to prove their abilities, gain experience and develop their growth and career
prospects.
iii. Motivation: In addition to improving the managerial and employee efficiency, delegation
provides the employees with psychological benefits as well. By motivating the employees,
delegation encourages them to put in their best efforts. This is because, with higher authority
and responsibility, the employees gain confidence and are encouraged to work more
efficiently.
iv. Growth: Delegation facilitates growth and expansion. It helps in the preparation of
efficient and experienced managers who can take up leading positions at the organisation in
the times of growth. Thus, the workers who are trained and prepared through delegation
contribute to the expansion and growth of the organisation.

OR

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A functional structure involves grouping of the functions of similar nature. Each group forms
a separate department that reports to one head. For example, departments may be divided
on the basis of functions such as production, human resources, etc. that report to the
managing director of the organisation.
The disadvantages of a functional structure are:
i. Less emphasis on organisational objectives: A functional structure places more
emphasis on departmental objectives over organisational objectives. Hence, functional
structure may lead to the formation of functional empires where a particular function is
given undue importance with respect to the overall organisational objectives.
ii. Problems in coordination: As an organisation grows bigger in size, the increasing
number of activities are grouped into different departments. With this, the coordination
among these departments becomes difficult to achieve, thereby resulting in delayed decision-
making.
iii. Conflicts: It may happen that the interests of different departments are not compatible
with each other. For instance, sales department may wish to introduce a new promotional
scheme for the customers (say, buy one and get one free), but the finance department may
not approve the same due to lack of funds. Such incompatibility often leads to conflicts
among different departments.
iv. Inflexibility: As each department specialises in its particular function, the employees of a
department have a limited set of skills that is applicable to only one particular function. This
results in a high degree of inflexibility, as over a period of time, different departments
develop a narrow perspective and do not have experience in the diverse activities.

Q30. Explain the following as factors affecting the requirements of fixed capital:
(a) Natural of business
(b) Growth prospects
(c) Diversification and
(d) Level of collaboration

OR

Explain the following as factors affecting dividend decision:

(a) Stability of dividends
(b) Shareholder's preferences
(c) Access to capital market and

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(d) Legal constraints

Ans.(a) Nature of business: Organisations that deal in services or trading (having a small
operating cycle) require low fixed capital. On the other hand, manufacturing firms involving
a large operating cycle require higher fixed capital.
(b) Growth prospects: Higher growth and expansion of a company is associated with higher
production, more sales, larger inputs, etc. This requires higher level of machinery and
equipment, resulting in higher fixed capital. On the other hand, companies with low growth
prospects require low fixed capital.
(c) Diversification: Greater diversification implies larger scale of operations, which requires
greater investment in plants, machinery, building, etc. Therefore, it requires greater fixed
capital. On the other hand, companies with low or no diversification require less fixed
capital.
(d) Level of collaboration: At times, business organisations undergo collaboration with each
other and jointly establish certain facilities. In such cases, individual organisations'
requirement for fixed capital reduces.

OR

(a) Stability of dividends: Companies generally follow the practice of stabilising their
dividends. This is an important factor that affects the dividend decision of a company.
Companies try to avoid frequent fluctuations in dividend per share and opt for increasing (or
decreasing) the value only when there is a consistent rise (or fall) in their earnings.
(b) Preference of the shareholders: A company must keep in mind the preferences of the
share holders while distributing the dividends. For instance, if the share holders prefer at
least a certain amount of dividend, then the company is likely to declare the same.
(c) Access to capital market: The companies that have a greater access to the capital market
tend to pay higher dividends. This is because they can rely less on retained earnings and
more on other sources due to the market access. On the other hand, the smaller companies
with lower access to capital markets tend to pay lower dividends.
(d) Legal constraints: Companies have to adhere to the rules and policies laid out by the
Companies Act. Thus, every company needs to take care of such restrictions and policies
before declaring the dividends.

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