All Chap Q&a

RANA COMMERCE CLASSES
CLASS: 12TH COMMERCE

SUBJECT: BUSINESS STUDIES
QUESTION AND ANSWER
CHAPTER: FULL SYLLABUS
CHAPTER-1 NATURE AND SIGNIFICANCE OF MANAGEMENT

1 “Planning, Organizing, Staffing, Directing and controlling” is the sequence of
functions in a process. Name it.
Ans. Management
2 Production manager tries to produce goods with minimum costs. Name the
concept which is being focused by management?
Ans. Efficiency
3 Hritik Ltd target is to produce 10,000 shirts per month at a cost of Rs. 150 per shirt.
The production manager has achieved this target at the cost of Rs 160 per shirt. Do
you think the production manager is effective?
Ans. He is effective as he has achieved the target but he is not efficient as he
achieved the target by incurring higher cost.
4 What do you mean by effectiveness?
Ans. It means completing the task or achieving the goals within stipulated time
period.
5 In order to be successful, an organization must change its according to the
needs of the environment. Which characteristic of management is
highlighted in the statement?
Ans. Management is a dynamic function
6 Your Grand Father has retired as the director of a manufacturing company. At what
level of management was he working.
Ans. Top management.
7 ‘Management is multi-dimensional’. Explain?
Ans. Management is a complex activity and involves following three main
dimensions -
i) Management of works In each and every organisation, certain type of work is to be
performed. In school, overall development of a child is to be done; in hospitals,
patients are treated etc. Management converts these works into goals and devises
the means to achieve them.
ii) Management of People. Management is concerned with “getting things done
through people”, which is a very difficult task. All the employees have different
personalities, needs backgrounds and methods of work. Thus, it becomes
management’s job to make them work as a group by giving common direction to their
efforts.
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iii) Management of operations. In order to survive, each organisation has to provide
certain goods or services. This involves production process thus, management of
operations is inter linked with both the above dimensions viz., management of work
and the management of people
8 What are the personal objectives of the management?
Ans. Personal objectives refer to the objectives which are related to theemployees of
an organisation. They are as follows:
i) Financial needs like competitive salaries, incentives and other monetary benefits.
ii) Social needs like recognition in the organisation. Higher level need which includes
personal growth and development
9 “Coordination is synchronization of group efforts to achieve organizational
objectives.”Give definition and in the light of this statement highlight any three
importance of coordination.
Ans. Definition of coordination
i.Growth in size
ii. Functional differentiation
iii. Specialization
10 Explain the 'social objectives' of management.
Ans. Each organisation is a part of society and thus it has certain social obligations to
fulfil.
Some of them are as follows:
(i) To supply quality goods and services
(ii) Providing basic amenities to the employees like schools and creches for their
children, medical facilities etc.
(iii) To generate employment opportunities especially for the backward classes.
(iv) To provide environment friendly methods of production.
(v) To provide financial support to society by donating for noble causes.
(vi) To organize educational, health and vocational training programmes.
(vii) To participate in social service projects of Government and Non – Governmental
Organisations (NGOs)
11 ABC Ltd. sells Blood sugar testing equipment of three different brands vizGluneo,
Onetouch and Oncall. There are three people in the dispatch department, five in
sales department and two in purchase department. Of late, customers are
complaining that the goods dispatched are as per the goods ordered. Many times
quantity demanded is short or the products are of different brand. The sales
department is also complaining that the goods are not in stock therefore they are
not able to meet with the orders. Purchase department says that neither the store
in-charge informs them about the stock levels nor the sales manager provides them
with forecast sales. Each department is holding others responsible for the chaos.
Which quality of management is missing in ABC Ltd. Explain the role that this quality
plays in improving the business performance?
ANS: Coordination
•Ensures unity of action
•Erases interdepartmental conflicts
•Promotes harmonious implementation of plans
•Helps in maintaining a high degree of morale amongst employees
12 Hindustan Entertainment Company is organizing circus shows internationally for the
last thirty years. Their shows have been successful across the globe. Of late, their
shows are not as popular as they were in the past. Therefore they are thinking of
bringing necessary changes in their shows to regain their popularity. Identify which
characteristic of management they reflect in their business. Give reasons. Suggest
the necessary actions or decisions which should be be taken at each level of
management to improve business opportunities.
ANS: Dynamic: adapt to changes, follow new strategies to attract their viewers
Goal oriented: because they want to achieve their objective that they were in pursuit
for last 30 years
At Top Level: analyse reason for downfall, see and learn from competitors, invest
money and bring latest from the market & to promote innovation and coordinate
efforts of all employees in this pursuit
At Middle Level: bring innovation, market their shows, advertise, implement the plans
of top level, motivate the performers to adapt to changes and encourage initiative
At Lower Level: supervisors and workers must work in line with the policies of top level
andmiddle level, open to changes, adapt and practice to the new innovations and
initiate to bring innovative ideas
13 Sooraj works as a salesman in a company selling pet accessories and food. He has
been given a target of selling 1200 units of the food packets in a month by offering a
maximum of 10% discount to his customers. In order to meet his monthly sales
target, on the last two days of the months, he offers 15% discount to his customers.
In the context of the above case:
Is Sooraj effective in his work? Explain by giving a suitable reason in support of your
answer.
Ans. Yes, Sooraj is effective in his work as he has been able to meet his monthly sales
target of selling 1200 units of the food packets.
14 Bhuvan argues that management is required in all kinds of organizations where
asPiyush feels that management is not required in non-business organizations such
as school, club, hospitals, etc. who is correct?
Ans. Bhuvan, because management is pervasive
15 Sonu Nigam‟ the famous playback singer always spends time for practice and adds
his creativity in his singing. Like Sonu Nigam, Mr. Rajiv, manager of Headlines Ltd.
uses his creativity and practice management principles under different situations to
manage the business. The employees are happy and satisfied as he every day reward
employees for their punctuality and efficiency.
1. Identify the nature of management highlighted above.
2. Name other two aspects of nature of management.
Ans.
1. Nature of management highlighted above is “Management as an Art”
2.The other two aspects of nature of management are:
a. Management as Science.
b. Management as Profession.
16 Dheerj is working as “Operations Manager” in Tifco Ltd. Name the managerial level
at which he is working. State any four functions he will perform as “Operations
Manager” in this company. (5 marks)
Ans. Dheeraj is working at middle level management.
Functions: The main task of Dheeraj is to carry out the plans formulated by the top
managers. For this he need to:
1. Interest the policies framed by top management,
2. Ensure that his department has the necessary personnel, assign necessary duties
and responsibilities to them.
3. Motivate them for higher productivity to achieve desired objectives, and
4. Cooperate with other departments for smooth functioning of the organization
17 Yash Ltd. is facing a lot of problems these days. It manufactures electronic goods
ike washing machines, microwave ovens, refrigeration and air-conditioners. The
company‟s margins are under pressure and the profits and market marketing
department blames production department for producing goods, which are not
of good quality to meet customers‟ expectations. The finance department
blames both production and marketing departments for declining return on
investment and bad marketing.
1. What quality of management do you think the company is lacking? Justify your
answer.
2. State the importance of the concept identified in (a). (5 marks)
Ans.
1. Coordination: because production, marketing and finance departmental efforts are
not coordinated for achieving organizational objectives harmoniously. As a result, the
company‟s profits and market share are declining.
2. Importance of Coordination
1. Growth in size:
2. Functional differentiation:
3. Specialization
18 Ashutosh Goenka was working in 'Axe Ltd.', a company manufacturing air purifiers.
He found that the profits had started declining from the last six months. Profit has an
implication for the survival of the firm, so he analysed the business environment to
find out the reasons for this decline.
(a) Identify the level of management at which Ashutosh Goenka was working.
Ans: Ashutosh Goenka was working at the ‘top level management’.
(b) State three other functions being performed by Ashutosh Goenka.
Ans: Ashutosh Goenka must perform these three functions:
 He needs to organise all the physical and human resources required.
 He must formulate objectives and set goals for the organization.
He must assign work to the middle level managers and guide them accordingly

19 Rishitosh Mukherjee has recently joined AMV Ltd, A company manufacturing
refrigerators. He found that his department was under-staffed and other
departments were not cooperating with his department for smooth functioning
of the organization. Therefore, he ensured that his department has the required
number of employees and its cooperation with other departments has
improved.
(a)Identify the level at which Rishitosh Mukerjee was working.
Ans: Rishitosh Mukherjee was working at the ‘middle level management’.
(b) Also, state three more functions required to be performed by Rishitosh Mukerjee
at this level.
Ans: Rishitosh Mukherjee needs to perform following three functions:
 He needs to assign work to the lower level managers and guide them so that desired
objectives are achieved.
 He needs to inform the top level management regarding the market demands and
requirements of physical and human resources.
He must also motivate and control the activities of lower level management so that
they achieve desired results.
20 How is management all pervasive?
Ans: Management is a universal process. It is required in all types of organization
whether big or small,financial or non financial, social or economic, profit or non profit
organization and is performed at every level of authority; top, middle or lower. The
five activities of management are the same for all the organizations irrespective of
economic, social or political boundaries. It's just that the methodology differs but the
basics and foundation remains the same
21 ‘Management provides judgement and vision’. Explain?
Ans: Management is a dynamic function hence, it responds to the changes in external
and internal environment and helps organization in making strategies to adapt itself to
those changes so as to maintain competitive edge. It helps organizations in decision
making and future vision. Thus, management provides judgement and vision
22 Explain any four features of coordination.
Ans: The features of coordination are as follows:
 Coordination Integrates Group Efforts: It integrates efforts of all individuals working
either individually or in a group towards achievement of organizational goals.
 Coordination Is A Continuous Process: Coordination is an ongoing process. It is
required in all the functions of management from planning till achieving the targets.
 Coordination Is An All Pervasive Function: Coordination is required for all the
activities, in all the departments and at all the levels of management to achieve the
desired results.
Coordination Is The Responsibility Of All The Managers: Coordination among all the
managers at all the departments and at all the levels of management is must to ensure
proper implementation of policies and plans in the organization
23 A company manufacturing mobiles is facing the problem of decreasing sales in
the market. You can imagine any product about which you are familiar. What
decisions/ steps each level of management should take to give effect to this
decision?
Ans: Modification is needed to compete with the similar products in the market. For
this, each level of management has to contribute in following ways:
A. Top Level Management:
 They need to analyse the business environment and take decisions regarding the
modification to be done.
 They need to establish objectives of modification, formulate plans and policies to
implement the modification.
 They need to organise all physical and human resources required for modification.
 Inform all departments about modification and coordinate their activities.
B. Middle Level Management
They must inform top level management about the possibilities of modification,
market demand or expectations required to implement modification.
 They must interpret plans and policies and instruct lower level management for their
implementation.
 They must recruit, select and train personnel to be able to take up modification.
 They must assign responsibilities and duties to lower level managers.
C. Lower Level Management
 Before the modification decision is taken, they may give their views about the kind of
modification or technology is required
 They must issue orders and instructions to the workforce to implement plans.
 They must train or guide the workforce to carry out production activities.
They must supervise work closely to ensure that work is done effectively and
efficiently
24 Without effective management the resources will remain as resources cannot be
converted into productive utilities. “do you agree” ? give reasons.
OR
“Success of an organization largely depends upon its management.” Explain any
five reasons to justify the above statement.
Ans: Yes, I agree. The following points of importance of management justify the
statement:
 Achievement of group objectives: Management creates coordination and team spirit
in the group of individuals. Management also inspires the members of the groups to
make their best contribution towards the achievement of the common objective. This
common objective is set by the management itself.
 Optimum utilization of resources: Management brings together men, money,
material, machine in the right proportion to reduce cost and maximize production.
 Minimization of Cost: Management improves efficiency and reduces cost through
better planning, sound organization and effective control. By eliminating wastage and
minimum cost, management helps an organization to face cut throat competition.
 Social development: Management increases the standard of living of the people by
providing good quality products and services at minimum cost. It also helps in

generating employment opportunities and adopting new technologies.
Achievement of personal objectives: Each and every individual joins an organization
for pursuing their personal objectives. Some join for a good package of salary, some
join for greater recognition, some just for survival. So, this depends upon individual to
individual. Management plays an important role in identifying the personal objectives
so as to integrate it with the organizational objectives to bring harmony in the
organization, as well as successful fulfilment of the personal objectives of the
individuals
25 Aman, Ahmad and Ally are partners in a firm engaged in the distribution of dairy
products in Maharashtra state. Aman is a holder of a Senior Secondary School
Certificate from the Central Board of Secondary Education with Business Studies
as one of his elective subjects. Ahmad had done his post graduation in History
and Ally in dairy farming. One day there was a serious discussion between Ahmad
and Ally regarding the nature of management, Ahmad argued that management
was a profession. Whereas Ally argued against it saying that the legal and
medical profession are the only professions because they fulfill all the conditions
of profession. Aman on the basis of his knowledge of business studies explained
the nature of management as a profession to Ahmad and Ally. Explain how Aman
would have satisfied both Ahmad and Ally.
Ans: Ahmed and Ally could have been satisfied by Aman through the explanation of
the following features of management as a Profession:
Points that justifies Ahmad’s argument of management as a profession:
 Well Defined Body of Knowledge: Every profession has a systematised body of
knowledge which can be learned through instructions. This feature of the profession
is present in management as it consists of systematic knowledge of concepts,
theories and principles.
Points that justifies Ally’s argument of management not a profession:
 Restricted Entry: To become a professional one needs to pass an examination or have
an educational degree. However to make a career in management, there is no need
to have any professional qualification, or an educational degree etc.
 Statutory Body: Every profession is regulated by a legally recognized body like ICAI
for a chartered accountant. Management also have their association like All India
Management Association but management associations are not statutory bodies.
 Ethical Code of Conduct: A strict code of conduct exists in every profession. This
feature is not present in management as there is no specific code of conduct for
managers that legally binds a manager.
Service Motive: The basic motive of a profession is to serve clients with dedication.
This feature is not present in management as it aims to accomplish organizational
goals that is generally profit maximisation

CHAPTER-2 PRINCIPLE OF MANAGEMENT
1 What is meant by ‘Principles of Management’?
Ans. It is broad and general guidelines for decision making and behaviour of
management.
2 Give anyone difference between Principle and Technique.
Ans. Principles are guidelines to take decision whereas techniques are
methods to take action.
3 What is meant by 'Universality of management principles'?
Or
Why is it said that management principles are universal?
Ans. This it means that they are applicable to all kinds of organizations
4 The principles of management aren't rigid and can be modified when the
situation demands. Which nature of principles is being discussed here?
Ans. Flexibility.
5 Factory owners or managers relied on personal judgment in attending to the
problems they confronted in the course of managing their work. Which
principle of Taylor is it referring to ?
Ans. 'Rule of thumb'
6 What do you mean by Mental Revolution?
Ans. Mental Revolution means revolutionary change in the attitude of both workers
and managers from competition to cooperation
7 Principle of cooperation, not individualism, is an extension of which principle
given by Fayol?
Ans. Principle of Harmony, not discord
8 The directors of XYZ limited, an organisation manufacturing computers, want to
double the sales and have given the responsibility to the sales manager. The sales
manager has no authority either to increase sales expense or appoint new salesmen.
Hence, he could not achieve this target. Identify the principle violated in this
situation.
Ans. Principle of Authority and Responsibility.
9 A company manufacturing motorcycles and cars should have separate divisions for
both, headed by separate divisional managers, separate plans and resources.
Identify the principle with the help of this example.
Ans. Unity of Direction.
10 Shaaranya Ltd. was engaged in the business of manufacturing auto components.
Lately, its business was expanding due to increased demand for cars. The
competition was also increasing. In order to keep its market share intact, the
company directed its workforce to work overtime. But this resulted in many
problems.Due to increased pressure of work the efficiency of workers declined.
Sometimes the subordinates had to work for more than one superior. The workers
were becoming indisciplined. The spirit of team work, which had characterized the
company previously, had begun to wane. Identify, quoting the lines from the above

the General principles of managements being violated.
ANS:
1.Sometimes the subordinates had to work for more than one superior.-Unity of
command
2. The workers were becoming indiscipline. - Principle of discipline
3. The spirit of team work, which had characterized the company previously, had
begun to wane- Espirit-de-corps
11 An environmental conscious multinational company "AXN Ltd." follows certain well
defined business principles that result to minimize the employee turnover. Following
are some of the important environmental factors followed by 'AXN Ltd.'
(1) Honour the law of every country in which it operates.
(2) Respect the culture and customs of all nations.
(3) Provide clean and safe products to enhance the quality of life throughout the
world.
(4) Develop a culture in the company that enhances individual creativity and
teamwork while honouring mutual trust and respect between management and
labour.
From the above:
(i) Identify and state any one general principle of management and any one
dimension of business environment.
(ii) Also identify any two values which the above guiding principles and
environmental factors are conveying to the society.
Ans. (i) Principle of management:(Any one)
(a) Stability of personnel
(b) Esprit de corps
(c) Initiative
Dimension of business environment :(Any one)
(a) Legal environment.
(b) Social environment.
(ii) Values being conveyed: (Any two)
(a) Respect for law
(b) Cleanliness and hygiene
(c) Raising standard of living
(d) Secularism
12 Explain the technique ‘Functional Foremanship’
Ans. Functional foremanship is the extension of the principle of specialization. This
technique emphasises on the separation of planning from execution. To facilitate it,
Taylor suggested setting up of "planning in charge" and "production in charge".
FUNCTIONAL FOREMANSHIP
Planning In charge: The main function of "planning in charge" is to plan all aspects
of a job to be performed. It consists of four positions:
i. Route clerk: He determines the sequence to perform various
mechanical and manual operations.

ii. Instruction card clerk: He issues instructions to the workers to be
followed by them.
iii. Time and cost clerk: He is concerned with the framing of time
schedule on the basis of determined route. Also, he keeps the
record of the cost of operations.
iv. Disciplinarian: He is concerned with the coordination in each job
from planning to successful execution. He enforces rules and
regulations and maintains discipline.
Production In charge: It consists of following four specialists who are
concerned with the execution of plans.
i. Speed Boss: He checks whether work is progressing as per schedule. He
ensures timely and accurate completion of jobs.
ii. Gang Boss: He arranges machines, materials, tools, and equipment properly
so that workers can proceed with their work.
iii. Repair Boss: He ensures that all machines, tools, equipment are in perfect
working order.
iv. Inspector: He ensures that the work is done as per the standards of quality set
by planning department.
13 Name and explain that principle of Fayol which suggests that communication from
top to bottom should follow the official lines of command. - 5 or 6 Marks
Or
Explain the 'Principle of Scalar Chain' with an example.
Ans. In an organization, the formal lines of authority, from highest to lowest level of all
superiors and subordinates, are known as scalar chain. The principle of scalar chain
suggests that there should be a clear line of authority from top to bottom, linking
superiors and subordinates at all levels. The scalar chain serves as a chain of
command as well as communication. In normal circumstances, the formal
communication is required to be made by following this chain.
Scalar Chain and Gang Plank

Example: The above figure shows the scalar chain linking managers at lower levels with
the top management. If D has to communicate with G, The message should ordinarily
move up through C and B to A, and then down from A to E, F and G.
Above mentioned chain has following disadvantages:
(i) It causes delay in reaching communication to the required level.

(iii) Creates the possibility of distortion of information flow as various levels are
involved.
To avoid delays and to remove hurdles in the exchange of information, concept of
Gang Plank has been suggested by Fayol, shown by the dotted line joining D and G.
14 Explain the following techniques of scientific management.
(i) Time study
(ii) Simplification of work
Ans.(I) It refers to determine the standard time required to complete a particular
work.
(II)Simplification means putting an end to the unnecessary types qualities sizes,
weights etc.
15 In your school, you observe that books are kept in office, chalks in the library and
office records in the staff room.
1. Which principle of management is violated here and why?
2. How will that affect the achievement of school objectives?
3. As a manager, what steps will you take to rectify the shortcomings? (3 marks)
Ans.
1. The principle of ‘Order’
2. In the absence of orderliness, school objectives will not be achieved efficiently and
effectively.
3. Things should be placed at appropriate places to achieve maximum efficiency with
given time framework
16 The production manager of an automobile company asked the foreman to achieve a
target production of 200 scooters per day. But he did not give him the authority of
requisition tools and materials from the stores department. Can the production
manger blame the foreman if he is not able to achieve the desired target? Explain
briefly the principle relating to the situation.(3 marks)
Ans. No, the production manager cannot blame the foreman because he did not give
him the authority to requisition tools and materials form the stores department.
Since he has no authority, he could not fulfill his responsibility. In this case the
principle of ‘Authority and Responsibility’ is violated. Fayol suggested that there must
be a balance between authority and responsibility. Authority and responsibility must
go hand in hand. Responsibility without adequate authority will make the
subordinate ineffective, I.e., he will not be able to perform his duties properly. At the
same time giving authority without fixing responsibility may lead to misuse of of
authority
17 Soniya Ltd. was engaged in the business of manufacturing auto components. Lately,
its business was expanding due to increased demand for cars. The competition was
also increasing. In order to keep its market share intact, the company directed its
workforce to work overtime. But this resulted in many problems.
Due to increased pressure of work the efficiency of workers declined. Sometimes,
The subordinates had to work for more than one superiors. The workers were
Becoming indisciplined. The spirit of teamwork, which had characterized the
company previously, had begun to wane. Identify any three principles of
management (as given by Henry Fayol) which were begin violated, quoting the lines
from the above case. (3 marks)
Ans.
Unity of command
“Sometimes, the subordinates had to work for more than one superiors.’
Discipline
‘The workers were becoming indisciplined.’
Spirit de corps
‘The spirit of teamwork, which had characterized the company previously, had begun
to wane.’
18 The management and workers have entered into an agreement that workers will do
overtime to cover up looses of the company. In return, the manager will increase the
wages. But management later refused to increase the wages. Name the principle
violated in this situation.(1 mark)
Ans. Principle of discipline
19 Rishabh, a manager, very often speaks to people at all levels, passing on instructions
regarding his department and also the other departments. Which principle of
management is being overlooked? (1 mark)
Ans. Principle of Scalar Chain
20 Kanika and Priyanka are typists in a company having same educational qualifications.
Kanika is getting Rs. 16000 per month and Priyanka Rs. 10000 per month as salary for
the same working hours. Which principle of management is violated in this case. (1
mark)
Ans. Principle of equity
21 In Simran Ltd., an employee has the objective of maximizing his salary, but the
organizational objective is to maximize output at competitive cost. There was some
dispute on this for a while. Eventually, the organization’s interest was given priority
over employees’ interest. Name the principle related to this situation. (1 marks)
Ans. Principle of subordination of individual interest to general interest
22 Radhika opens a jewelry showroom in Jaipur after completing a course in jewelry
designing. She has employed eleven persons in her showroom. For greater
productivity,sh e divides the work into small tasks and each employee is trained to
perform his/her specialized job. The sales persons are allowed to close a deal with a
buyer by giving a maximum of 10% discount, whereas the decision to given any
further discount rests with Radhika as the final authority. In the earlier days of
starting of the business, five of her employees were asked to put in extra hours of
work. In return she had promised to give them a special incentive within a year.
Therefore, after six months when the business was doing well, she awarded a cash
bonus to each of these employees to honour her commitment. However, when it
comes to setting the conflicts among her employees, she tends to b e more biased
towards her female employees. In context of the above case:
1. Identify and explain the various principles of management that are being applied
by Radhika by quoting lines from the paragraph.
2. Identify and explain the principle of management which is being violated by
Radhika by quoting lines from the paragraph.
3. State any one effect of the violation of the principle of management by Radhika as
identified in part (b) of the question.
Ans.
The various principles of management that are being applied by Radhika are listed
below:
Principle of Division of work:
“For greater productivity, she divides the work into small tasks and each employee is
trained to perform his/her specialized job.”
Principle of Centralization and Decentralization:
“The sales persons are allowed to close a deal with a buyer by giving a maximum of
10% discount, whereas the decision to give any further discount rests with Radhika as
the final authority.”
Principle of Discipline:
“Therefore, after six months when the business was doing well, she awarded a each
Bonus to each of these employees to honour her commitment.”
The principle of management which is being violated by Radhika is Equity.
“However, when it comes to setting the conflicts among her employees, she tends to
be more biased towards her female employees.”
One effect of the violation of the Principle of Equity is that it may lead to job
dissatisfaction among the male workers
23 Davinder is a class twelfth commerce student in a reputed school in Punjab. Satinder
is his elder brother who is doing his Masters in Hospital administration from Delhi
after completing his B. Sc course. During vacations when Satinder comes home,
Davinder shows him the business studies project that he is preparing on the topic
‘Principles of Management’. Satinder tells him that these principles are also a part of
MBA course curriculum at the beginner’s level as they form the core of management
in practice. But he finds these principle different from those of pure science.
In context of the above case:
1. Outline the concept of principles of management.
2. Why does Satinder find the principle of management different from those of pure
science?
3. Why do the principles of management form the core of management in practice?
Explain by giving any two points highlighting the importance of principles of
management.
Ans.
1. The principles of management serve as a broad and general guideline for the
managerial decision making and action.
2. Satinder finds the principles of management different from those of pure science
because the management principles are not as rigit as principles of pure science. This is
due to the fact that they deal with the human behavior and thus, need to be

applied creatively in the light of given situation.
3. The importance of principles of management is described below:
1. Providing managers with useful insights into reality:
2. Optimum utilization of resources and effective administration:
24 Nutan Tiffin Box service was started in Mumbai by Mumbai dabbawalas. The
Dabbawalas who are the soul of entire Mumbai aim to provide prompt and efficient
Services by providing tasty homemade tiffin to all office goers at right time and
place. The service is uninterrupted even on the days of bad weather, political unrest
and social disturbances. Recently they have started online booking system through
their website’ mydabbawals.com’. owing to their tremendous popularity amongst
the happy and satisfied customers and members, the dabbawalas were invited as
guest lecturers by top business schools. The Dabbawals operate in a group of 25-30
people along with a group pleader. Each group teams up with other groups in order
to deliver the tiffin on time. They are not transferred on frequent basis as they have
to remember the addresses of their customers. They follow certain rules while doing
trade-No alcohol during working hours; No leave without permission; Wearing of
white cap & carrying ID cards during business hours. Recently on the suggestion of a
few self motivated fellow men, the dabbawalas thought out and executed a plan of
providing food left in tiffins by customers to slum children. They have instructed
their customers to place red sticker if food is left in the tiffin, to be fed to poor
children later.
1. State any one principle of management given by Fayol & one characteristic of
management mentioned in the above case.
2. Given any two values which the Dabbawalas want to communicate to the society.
(4 marks)
Ans.
Principles of management (any one)
1. Stability of Personnel
2. Initiative
3. Discipline
4. Esprit de corps
Characteristic of management (any one)
1. Goal oriented
2. Group activity
Values that have been communicated by the Dabbawalas: (any two)
1. Fulfilling social responsibility;
2. Empathy towards disadvantaged children;
3. Team work (or any other suitable value)
25 ‘Aapka vidyalaya’ believes in holistic development of students and encourages team
building through a mix of curricular, co-curricular and sports activities. On its
founders day a stage performance had to be put up. A committee of ten prefects was
constituted to plan different aspect of the function. They all decided to use recycled
paper for decoration. There was a spirit of unit and harmony and all members

supported each other. With mutual trust and belongingness the programme was
systematically planned and executed. Kartik, one of the prefects realized that
unknowingly the group had applied one of the principles of management while
planning and executing the programme. He was so inspired by the success of the
function that he asked his father to apply to same principle in his business.
His father replied that he was already using this principle.
1. Identify the principle of management applied for the success of the programme.
2. State any two features of management highlighted in the above para.
3. Identify any two values which ‘Aapka Vidyalaya’ communicated to the society.
(4 marks)
Ans.
1. Espirit de corps
2.
1. Management is pervasive--‘ …he asked his father to apply the same principle in his
business.’ Management is pervasive as it can be applied to all types/levels of
organizations.
2. Management is a group activity –‘ There was a spirit of unity and harmony and all
members supported each other.’ Management is a group activity because it requires
team work and/or coordination of individual efforts.
3. Values being communicated to the society: (Any two)
1. Concern for the environment.
2. Holistic development of children.
3. Teamwok
26 Nikita and Salman completed the MBA and started working in a multinational
company at the same level. Both are working hard and are happy with their
employer. Salman had the habit of backbiting and wrong reporting about his
colleagues to impress his boss. All the employees in the organization knew about it.
At the time of performance appraisal the performance of Nikita was judged better
than Salman. Even then their boss, Mohammed Sharif decided to promote Salman
stating that being a female Nikita will not be able to handle the complications of a
higher post.
1. Identify and explain the principle of management which was not followed by this
multinational company.
2. Identify the values which are being ignored quoting the liens the above para.
(5 marks)
Ans.
1. The principle violated is EQUITY.
It advocates that there should be no discrimination against anyone on account of sex,
religion, language, caste, belief, nationality etc.
It emphasizes kindliness and justice in the behavior of managers towards the workers
to ensure loyalty and devotion.
2. The valuation which are being ignored are:
1. Good human behavior because ‘Salman had the habit of backing and wrong

reporting about his colleagues to impress his boss.’
2. Gender Equality because ‘Their boss decided to promote Salman stating that being a
female Nikita will not be able to handle the complications of a higher post.
27 ABC Ltd. is engaged in producing electricity from domestic garbage. There is almost
equal division of work and responsibility between workers and management. The
management even takes workers into confidence before taking important decisions.
All the workers are satisfied as the behavior of the management is very good.
1. State the principle of management described in the above para.
2. Identify any two values which the company wants to communicate to the society.
(3 marks)
Ans.
1. The principle of Taylor described in the above para is Cooperation, Not
Individualism. It states that there should be complete cooperation between the labour
and the management.Competition should be replaced by cooperation.
2. Values which the company wants to communicate to the society are:
1. Good behavior in human interaction.
2. Concern for the environment
28 Voltech India Ltd. is manufacturing LED bulbs to save electricity and running under
heavy losses. To revive from the losses, the management thought of shifting the unit
to a backward area where labour is available at a low cost. The management also
asked the workers to work overtime without any additional payment and promised
to increased to wages of the workers after achieving its mission. Within a short
period the company started earning profits because both the management and the
workers honoured their commitments.
2. Identify any two values that the company wants to communicate to the society.
(3 marks)
Ans.
1. The principle of management described in the above para is Discipline.
Discipline is the obedience to organizational rules and employment agreement which
are necessary for the working of the organization.
2. Values that the company wants to communicate to the society are:
1. Concern for the environment
2. Development of backward regions
29 What is the aim of Method study?
Ans. Aim is to find one best method of doing the job.
30 The Production manager of an automobile company asked the foreman to achieve a
target production of 200 scooters per day. But he did not give him the authority to
requisition tools and materials from the stores department. Can the production
manager blame the foreman if he is not able to achieve the desired target? Explain
briefly the principle relating to the situation.
Ans. No, Principle of authority and responsibility is violated
31 Kushal Ltd. is a leading automobile company in which the various departments are
setting up their own objectives without paying any interest to the organizational
objectives.
1. Which aspect of management the company is lacking? What will be its impact on
the organization?
2. Identify the principle of management which has been overlooked by this
organization.
3. State any two values neglected by the people of this organization. (5 marks)
Ans.
1. The company is lacking ‘Coordination’.
Its different departments like production, marketing, etc. do not coordinate their
work.In the absence of coordination, there will be overlapping and chaos instead of
harmony and integration of activities.The company will fail to achieve its objectives.
2. Subordination of individual interest to general interest.
3. Values:
1. Mutual cooperation 2. Unity of action
3. Optimum utilization of resources
32 Telco Ltd. is manufacturing files and folders from old clothes to discourage use of
plastic fields and folders. For this, they employ people from nearby villages where
very less job opportunities are available. An employee, Harish, designed a plan for
cost reduction but it was not welcomed by the production manager. Another
employee gave some suggestion for improvement in design, but it was also not
appreciated by the production manager.
2. Identify any two values that the company wants to communicate to the society.
(3 marks)
Ans.
1. Initiative. It means eagerness to initiate action without being asked to do so.
2. Values which the company wants to communicate to the society are:
1. Sensitivity towards the environment
2. Creation of job opportunities
3. Development of backward regions.
33 Khandelwal Ltd., a tyre manufacturing concern has been established for more than
ten years. Having made good profits in the past, company wanted to expand further
and hence did not declare bonus for the previous year. The workers got agitated and
trade union declared strike and demanded bonus and other facilities. The
management decided not to give into their demands.
1. Which principle of scientific management is overlooked in the given case?
2. State any two values overlooked/ignored by the management in the above case.
(3 marks)
Ans.
1. Harmony, not Discord
2. Values overlooked are:
1. Mutual understanding

2. Empathy
3. Peace and stability
4. Law and Order
5. Sense of belongingness (any two)
34 Which principle of management implies that there should be ‘one head and
one plan’ for a group of activities having the same objective?
Ans. Principle of unity of direction implies that there should be ‘one head and one
plan’ for a group of activities having the same objective.
35 Name and explain the principle of management according to which a manager
should replace ‘I’ with ‘We’ in all his conversation with workers?
Ans. Esprit de corps It is the principle of management, according to which a manager
should replace ‘I’ with ‘We’ in all his conversation with workers.
Literally speaking, the phrase ‘esprit de corps’ means the spirit of loyalty and devotion
which unites the members of the group.
According to Fayol, management should promote a team spirit of unity and harmony
among employees. A manager should replace ‘I’ with ‘We’ in all his conversation with
workers to foster team spirit. This will give rise to a spirit of mutual trust and
belongingness among team members.
36 Explain the following principles of Fayol with the help of one example of each.
 Division of work
 Unity of direction (All India 2011; Delhi 2011c)
Ans. (i) Division of work Every employee should be assigned only one type of work. It
means that total work is divided into smail tasks/jobs and a trained specialist performs
each job. The objective of division of labour derive the benefits from the principle of
specialisation which can be applied to all work.
For example, publishing of a book involves several operations like computer typing of
text material, proof reading, printing, binding, etc. All the operations are performed by
different people who are experts in their respective field.
(ii) Unity of direction ‘One unit and one plan’ for the group of activities having the
same objective. This principle implies that there should be one head and one plan for a
group of activities having the same objective. It means that the efforts of members of
the organisation should be directed towards the achievement of a common goal.
For example, the mission of a company is to provide quality products at an affordable
prices to the customers. This should serve as a direction for all the departments,
namely, purchasing, financing, quality control and marketing
37 Explain any two of the following Fayol’s principles of management with examples
(i) Unity of direction (ii) Equity
(iii) Esprit de corps (iv) Initiative(All India 2008; Delhi 2008C)
Ans. (i) Unity of direction ‘One unit and one plan’ for the group of activities having the
same objective. This principle implies that there should be one head and one plan for a
group of activities having the same objective. It means that the efforts of members of
the organisation should be directed towards the achievement of a common goal.
For example, the mission of a company is to provide quality products at an affordable
prices to the customers. This should serve as a direction for all the departments,
namely, purchasing, financing, quality control and marketing.
(ii) Equity The principle of equity implies a sense of fairness and justice to all workers
working in an organisation. Observance of equity alone would make workers loyal and
devoted to the organisation. Equity does not mean equal salary to a peon and
supervisor. But equity means application of same disciplinary rules, leave rules, etc
irrespective of their grade, position and gender, language, religion or nationality, etc.
For example, the rules for granting medical leave to an employee should be same
irrespective of their position grade or gender.
(iii) Esprit de corps This principle states that union is strength. It refers to team spirit,
i.e. harmony in the work group and mutual understanding among the workers. A group
of workers holding hands and standing in union, leads to the achievement of goals
efficiently. Unity among the personnel can be accomplished through proper
communication and coordination, e.g. in a circket team, we need allrounder players,
they are good in batting, bowling, fielding, etc as the competition is tough and inooler
for a team to perform such kinds of players are required.
(iv) Initiative It means freedom to think out and execute a plan. The principle of
initiative implies that the managers of an undertaking should encourage its
subordinates to take some initiative in thinking out and executing plans. By
encouraging initiative, the management can motivate employees to work better and
harder, e.g. a manager of XYZ Ltd is being encouraged by his superior to take decisions
openly and.execute the plans accordingly for the betterment of the organisation.
38 Explain the principles of scientific management.
Ans: The principles of scientific management are as follows:
 Science Not Rule of Thumb: Each and every task performed in an organization
should be based on a scientific study and analysis instead of hit and trial
method. There should be a scientific plan along with standardised equipment to
do work efficiently and effectively. Hence, to simplify the tasks, and promote
ease in its performance, new techniques and methods need to be developed
and the management should not keep using the age-old methods and
techniques.
 Harmony, Not discord: This principle states that management and workers must
have good understanding and faith amongst them. The combined efforts of
management and workers help in achieving organizational goals.
 Cooperation Not Individualism: It is an extension of Harmony, Not Discord. This
principle states that each individual must work in the organization towards
achieving organizational goals. Both management and workers must work as a
team to achieve desired results effectively and efficiently.
 Development of Each and Every Person to his or her Greatest Efficiency and
Prosperity: According to this principle, organizations must appoint individuals
who have capability and ability to perform required work. It must provide
continuous on the job training for employees to improve productivity and
achieve growth.

39 Sanchit, after completing his entrepreneurship course from Sweden returned to India
and started a coffee shop 'Aroma Coffee Can' in a famous mall in New Delhi. The
specialty of the coffee shop was the special aroma of coffee and wide variety of
flavours to choose from. Somehow, the business was neither profitable nor popular;
Sanchit was keen to find out the reason. He appointed Sandhya, an MBA from a
reputed college, as a Manager to find out the causes for the same. Sandhya took
feedback from the clients and found out that though they loved the special unique
aroma of coffee but were not happy with the long waiting time being taken to
process the order. She analyzed and found out that there were many unnecessary
obstructions in between which could be eliminated. She fixed a standard time for
processing the order. She also realised that there were some flavors whose demand
was not enough. So, she also decided to stop the sale of such flavors. As a result
within a short period Sandhya was able to attract the customers. Identify and explain
any two techniques of scientific management used by Sandhya to solve the problem.
Ans: Techniques of scientific management used by Sandhya to solve the problems
were:
 Motion Study: It is a study of movements undertaken while doing a job. It
eliminates unnecessary movement to complete the task in minimum time with
greater efficiency. In this case Sandhya identified many unnecessary
obstructions in between the processes which could be eliminated.
 Simplification of Work: It means simplifying work by eliminating needless
varieties, sizes, dimensions etc. of products produced to utilise resources
optimally and reduce labour and overhead costs. In this case, Sandhya stopped
the sale of those flavors whose demand was not enough
40 Explain briefly 'Unity of Direction' and 'Order' as principles of general management.
Ans: The explanations are:
 Unity of Direction: This principle states that each department or group of
activities with the same objective should have their own plans and must be
headed by independent incharge. One head and one plan concept must be
followed.
 Order: This principle states that there should be orderliness in the organization.
It means there should be a defined place for all resources and all resources
should be in the assigned place.
For Example: In a plant layout, production is supposed to be taken on Machine 1 and
Machine 2 in a sequence, then both the machines should be arranged near to each
other. If both the machines are far away from each other, then there can be delay in
the production process, thus causing reduced productivity, and high costs.
41 How are management principles derived?
OR
"Management principles are evolutionary." Explain.
OR
"Derivation of management principles may be said to be a matter of science."
Explain.

Ans: Management principles are derived after observation, experimentation and
practice by different managers. These principles evolved over a long period of time
after continuous practicing and personal experiences of the managers in the past in
real life situations. Management principles are based on human behaviour and can be
used creatively by the managers according to the given situations.
42 Explain the features of the principles of Management.
Ans: The features of management are as follows:
 Universal Applicability: Principles of management have universal validity. These
are applicable to all types of organizations, business as well as non-business,
small as well as large enterprises and at different levels of authority. As these
principles are universal, it can be applied in different managerial situations
 General guidelines: Principles of management provide broad and general
guidelines for the organization to solve the problems arising in the business.
 Formed by practice and experimentation: Principles are formed after
observation, experimentation and practice by different managers over a long
period of time. These are evolved after continuous practicing and personal
experiences of the managers in the past in real life situations.
 Flexibility: Flexibility means that the managers can modify the principles
according to their need and use them creatively for solving the business
problems.
 Mainly behavioural: Principles of management explains relationship between
human and physical resources but they influence human behaviour the most
while achieving organizational goals.
 Cause and Effect relationship: They establish a relationship between cause and
effect so that they can be used in different situations.
 Contingent: The principles are relative and not absolute. Depending upon the
current situation at a certain point of time, the principles are applied.
43 Explain the importance of management principles.
Ans: The following are the importance of principles of management:
 Provides managers with useful insights into reality: The principles of
management are formed after experimentation and practice. So they provide
ideas, hints or guidelines to cope up with similar business problems.
 Optimum utilisation of resources and effective administration: The cause and
effect relationship helps managers to foresee the effect of their decisions and
actions thus, enabling them to use resources most effectively i.e., maximum
benefit with minimum cost.
 Scientific decisions: Principles of management are based on experiments,
observations and logic. Hence, they provide realistic, timely and objective
assessment of the given situation.
 Meeting changing requirements: The flexible nature of principles of
management provides opportunities to managers to modify principles to meet
the needs of the dynamic business environment.
 Fulfilling Social Responsibility: By incorporating values as a part of principles has

enabled businesses to fulfil social responsibilities. Providing equal opportunities,
following environment-friendly production techniques, producing good quality
products are examples of social responsibilities of business.
 Management training, education and research: The principles of management
and the managerial experiences are used as case studies to train employees or
for further modification or development of principles already applied.
44 Discuss the differences between the contributions of Taylor and Fayol.
Ans: The difference between the contributions of Taylor and Fayol are:
Basis F.W. Taylor Henry Fayol
Personality Taylor was a mechanical engineer. Fayol was a mining engineer
Title Father of scientific management Father of general management
Focus Taylor explained the factory shop Fayol explained what must be
floor working to improve included as managerial tasks to
productivity. improve overall administration.
Unity of He believed in functional He believed that every individual
Command foremanship where workers must have one boss and there
received commands/instructions should be a chain of authority.
from more than one specialized He developed the principle of
boss. unity of command, unity of
direction and scalar chain.
Basis of Information is based on Information is based on personal
information observations, experimentation, experience while working in
and analysis of various available various managerial positions.
methods of completing a specific
task.
Application It is applicable to business Applicable to all kinds of
enterprises involved in business enterprises,
manufacturing activities. manufacturing, trading or
service organizations.
45 Explain why is it said that principles of management are 'mainly behavioural' and
'contingent' in nature. Also explain how principles of management ‘provides
managers with useful insights into reality' and 'helps in thoughtful decision-making'.
Ans: The principles of management are 'mainly behavioural' and 'contingent' in nature
and ‘provides managers with useful insights into reality' and 'helps in thoughtful
decision-making'. This can be explained as follows:
 Mainly Behavioural: Principles of management explains the relationship
between human and physical resources but they influence human behaviour the
most while achieving organizational goals.
 Contingent: The applicability of principles of management depends on the given
situation and that point of time according to the needs in which that situation
happens.
 Provides managers with useful insights into reality: The principles of

management are formed after experimentation and practice. So they provide
ideas, hints or guidelines to cope up with similar business problems.
 Helps in thoughtful decision-making: Principles of management based on
experiments, observations and logic provide realistic, timely objective
assessment of the given situation.
46 Discuss the following techniques of Scientific Work Study:
(a) Time Study:
Ans: Time study is concerned with determining the standard time for performing a well
defined work. In this, standard time is fixed by using the average time taken to
perform the same activity several times. Time study also assists in the determination of
wages, drafting incentive schemes, manpower requirements etc.
(b) Motion Study:
Ans: It is a study of movements undertaken while doing a job. It eliminates
unnecessary movement to complete the task in minimum time with greater efficiency.
Also, it aids in designing the best possible method to perform the repetitive work. The
major objective of motion study is to eliminate the unnecessary movements in order
to complete a task in a shorter time.
(c) Fatigue Study:
Ans: Fatigue study helps in determining the amount and frequency of rest intervals
required to complete a task without getting physically or mentally tired. The break
interval in between work helps workers to regain the stamina to work with the same
energy, and hence, rest is essential to perform the work with full capacity. This study
helps to find out the standard intervals of break that help a worker to regain its
energy.
(d) Method Study:
Ans: The objective of method study is to find out the best way of doing the job. By
determining the best method one can minimise the cost of production and maximise
the quality and satisfaction of the customer.
(e) Simplification and Standardisation of work:
Ans: Simplification of work aims at eliminating the unnecessary diversity in the
products. It helps in savings of cost of labor, machine and tools and increased turnover.
There are shoe sizes, cloth sizes such as M, L, XL etc., this is done to reduce
unnecessary variations, and expenses.
Standardization refers to setting of standards or benchmarks for every business
activity, such as standardization of work, process, etc. Standardization thrives to
achieve quality work, and quality products by establishing standards of performance
for men and machines. For example there are standards for gold (hallmark),
agricultural products (Agmark), industrial products(ISI) that assure that the product is a
quality product.
47 Hritik is desirous of setting up a small factory to manufacture different kinds of
eco-friendly packaging materials. He proposes to adopt to logical approach to his
business rather than hit and trial method as he knows that this can result in
tremendous saving of human energy as well as wastage of time and materials. He

plans to adopt paternalistic style of management in practice in order to avoid any
kind of class-conflict that may emerge between him and the workers. Moreover, he
plans to seek the opinion of his workers before taking any important decisions and
also offers incentives to them for providing valuable suggestions for the business.
1. Identify and explain the various principle of scientific management that Hritik
plans to apply in his business.
2. List any two values that he wants to communicate to the society by offering
eco-friendly packaging material.
Ans.
1. The various principle of scientific management that Hritik plans to apply in his
business are described below:
1. Science, not Rule of Thumb:
2. Harmony, Not Discord:
3. Cooperation, Not Individualism: (explanation by own)
2. The two values that Harit wants to communicate to the society by offering eco-
friendly packaging material are:
1. Concern for environment
2. Sense of responsibility
48 Gaurika has been appointed as the chief organizer of a weeklong cultural event.
Being a staunch follower of scientific management, she decides to execute her work
by putting into practice the various techniques of scientific management. On the
basis of several observations, she is able to determine that the standard time taken
by the security officer at the gat to check the credentials of each visitor is 30
seconds. So she decides to employ two persons on this job for every function along
with the other necessary support staff. She considers the fact that every day, the
functions will take place in three shifts of four hours each, therefore it is important
to give breaks to the support staff even in a single shift to take her/his lunch etc.
moreover, on introspection, she determines that the best way to distribute
refreshment boxes to the visitors will be to hand it over to them at the exit gatebas
it would help to save time and eliminate any kind of confusion.
1. Identify and explain the various techniques of work study which have been put
into practice by Gaurika.
2. List any two values that Gaurika wants to communicate to the society.
Ans.
1. The various techniques of work study which have been put into practice by Gaurika
are outlined below:
1. Time Study: 2. Fatigue Study: 3. Method Study: (explanation by own)
2. The two values that Gaurika wants to communicate to the society are:
1. Optimum utilization of resources
2. Concern for employees

CHAPTER-3 MANAGEMENT AND BUSINESS ENVIRONMENT
1 ABC Pvt. Ltd., a book publishing house, identifies CCE as an opportunity early and
publishes its books as per the changed CBSE pattern before its competitors could do
the same. Which environment awareness is being identified by ABC Pvt. Lt.?
ANS: First mover advantage
2 What is Business Environment?
Ans. Forces affecting the performance of an organisation but outside its control are
called as Business Environment.
3 How have customers benefited by increased competition after
liberalisation and globalisation?
Ans. While purchasing they get a better quality and wider choice of goods and
services
4 What do you mean by disinvestment?
Ans. When the private sector takes over public sector, it is called disinvestment
5 Give one measure taken by Indian Government to introduce liberalisation.
Ans. Abolishing licensing requirements
6 Which two factors are included in Technological Environment?
Ans. Scientific Improvement and Innovations
7 Define Business Environment. State two important concerns of business
environment.
Ans. The sum total of all external factors which are outside the control of business
enterprises is termed as Business Environment. Factors may be social, political,
economic etc
8 Why is it said that business environment is uncertain?
Ans. Business environment is uncertain as it is difficult to predict future happenings
when environment changes are taking place frequently.
9 What is included in ‘Political Environment’ of business? State.
Ans. The following components are included in political environment of business:
(i) Constitutional framework
(ii)Political system
(iii)Political structure
(iv) Government interventions in business
(v) Foreign policy and defence policy of the country
10 What is included in ‘Legal Environment’ of business? State.
Ans. Legal environment includes:
(i) Several acts passed by government.
(ii) Court judgements. . . .”
(iii) Statutory warnings prescribed under law.
(iv) Legislations passed by the government, e.g. essential commodities, etc
11 Business environment includes both specific and general forces. List any
four specific forces.
Ans. Specific forces of business environment are:
(i) Suppliers (ii) Investors
(iii) Customers (iv) Competitors
12 Business environment includes both specific and general forces. List any
four general forces.
Ans. Genera! forces of business environment are:
(i) Social (ii) Political
(iii) Technological (iv) Legal
13 What is meant by business environment? Explain dynamic nature and uncertainty
as features of business environment.
Ans. Business environment is the sum total of all individuals, institutions and other
forces like customers, competitors, suppliers, distributors, industry trends,
substitutes, regulations government activities, social and cultural factors that are
outside the control of the business enterprise but may affect its performance.
Features of business environment are:
Dynamic nature Business environment is dynamic as it keeps on changing. It is not
static and its components are highly flexible, e.g. technological improvements,
increase in competition, etc.
Uncertainty Business environment is uncertain as it is difficult to predict future
happenings when environment changes are taking place frequently
14 Why is the understanding of business environment important for Explain with the
help of any four points.
or
Understanding of environment by business managers enables them not only to
identify and evaluate, but also to react to the forces external to their firms? In the
light of the statement, explain any four points of importance, of business
environment.
or
Explain any four points of importance of business environement.
or
State any five points which clarify how understanding of business environment
helps the managers?
or
Explain by giving any five reasons why understanding of business environment is
important for managers ?
or
Explain by giving any four points, why ‘in the present day competitive market, it is
essential for a business to remain alert and aware of its environment’?
Ans. In the present day of competitive market, it is essential for a business to remain
alert and aware of its
environment, because of the following points:
(i) Identify opportunities and getting the first mover advantage Awareness of
environment helps an enterprise to identify the opportunities prevailing in the

market and they can make strategies to capitalise such opportunities at the earliest,
e.g. Maruti Udyog became the leader in the small car market because it was the first,
who recognised the need for small cars in the environment.
(ii) Identify threats and early warning signals Environmental awareness helps an
enterprise in identifying possible threats in future, so that the enterpirse can take
timely measures to minimise the threats and its adverse effects, if any, e.g. when the
new firms entered in the mid segment cars (threat), Maruti Udyog increased the
production of its Esteem car. Increase in production enabled the company to make
faster delivery. As a result, the company captured a substantial share of the market
and became a leader in this segment.
(iii) Assist in planning and policy formulation Environment awareness helps a
business unit to identify opportunities and threats in the market. These serve as a
basis for planning future course of action and making policies for the same.
(iv) Tapping useful resources A business environment is an open system which gets
resources such as capital, labour, machines, materials, etc from the environment,
converts them into goods and services desired by the customers and then supplies its
output to the environment. Thus, a business firm depends on its external
environment for tapping various resources and for the sale of its output.
15 Explain the specific and general forces of business environment?
Ans.Business environment comprises of both specific and general forces. Specific
forces refer to those forces that are having direct effect on the day to day working of
the business viz. customers, competitors, investors etc. General forces refer to social,
political, legal and other forces which are having an indirect effect on the operations
of a business
16 What are the main dimensions of business environment? What does environment
consist of?
Ans. The main dimensions of business environment are
(i) Economic, (ii) Social, (iii) Technological, (iv) Political, (v) Legal Economic
environment consists of the factors having economic dimensions such as fiscal policy,
monetary policy, industrial policy etc
17 Explain the role of political environment in shaping the business?
Ans. Business functions within the framework of political environment. Generally,
government's policies change with the change of guard in power. Business is
required to understand and follow such changes and also respect the orders that
judiciary gives from time to time.
For example, after globalization, Government of India allowed many companies to
enter the Indian market for giving boost to the different industries like food
processing industry etc. That paved the way for entry of multinationals in India on a
large scale.
18 What do you mean by business environment? Explain the key components
of business environment.
Ans. Business environment is the sum total of all external factors that influence the
functioning of a business enterprise.
The components of general environment are:
(i) Economic environment:
Economic environment consists of factors having economic dimensions such as fiscal
policy, monetary policy, industrial policy etc.
Impact: Banking sector reforms have led to attractive deposit avenues and easier
credit policy. Likewise reforms in leasing & financial institutions are also catalysing
company's economic growth.
(ii) Social environment: It discriminates characteristics of the society in which an
enterprise exists. It consists of literary rates, educational levels, customs and
demographic distribution etc.
Impact : Equal pay for equal work for both male and female workers,
reservation of jobs for minorities etc.
(iii) Political environment
It consists of the political forces responsible for the management of public affairs and
their influence on business.
Impact : Government allowed Pepsi to enter Indian market again for giving boost
to the food processing industry.
(iv) Technological environment
It comprises of the various processes, techniques, approaches etc. by which an
organization transforms inputs into output.
Impact : Digital watches have pushed out traditional watches.
(v) Legal Environment : It characterises various governmental rules, regulations and
legislations etc. that all members of business community must follow.
Impact : Removal of control on foreign exchange and liberalization of foreign direct
investments
19 What do you understand by legal environment? Give two examples which protect
consumers' interests.
Ans. Legal environment consists of rules and regulations, framed by the Parliament,
under which business must operate. To exist and grow, business is required to follow
all the rules and regulations that constitute this environment.
Two examples protecting consumers' interests:
(i) Advertisement of alcoholic beverages is prohibited.
(ii) Packets of cigarettes should mention the statutory warning 'Cigarette smoking is
Injurious to health'
20 Enumerate any five Positive impacts of liberalization and globalization.
Ans. The positive impacts of liberalization and globalization are as follow:
1. Opportunities for new entrepreneurs.
2. Latest technology becoming available.
3. Opening up of foreign markets.
4. Easy imports of capital goods.
5. Direct investment by Indian companies abroad.
21 'Environment provides both constraints and opportunities." Comment.
Ans. Business environment provides both constraints and opportunities. Some of

the constraints are economic conditions, customs, government regulations,
availability of natural resources etc. Inspite of many initiatives, FDI is not picking up
in India due to political and bureaucratic hurdles. On the other hand, environment
also offers various opportunities which include changing needs of customers,
technological advances etc. For example, the growing demand for A.C. has
attracted many new players, domestic (Godrej, Kirloskar) as well as multinationals
(LG Electronics) to this industry.
22 Mr. Ajay after completing MBA from USA comes to India to start a new business
Under the banner Ecom Creations Ltd. He launches a new product in a e-learning
for senior Secondary School students in Commerce stream, which already has n
established market in UK and USA but not in India. His business starts flourishing
in India. Now more Indian companies entered into the market with other
subjects also. Identify and quote the lines from above para which highlight the
significance of understanding business environment. (4 marks)
Ans.
● “Comes to India to start a new business. launches a new product in e-learning for
Senior secondary school students in Commerce stream.”
1. It helps in assisting in planning and policy formulation.
2. It helps the firm to identify opportunities and get the first mover advantage.
● “His business starts flourishing in India.”
1. It helps in improving performance.
● “Now more Indian companies entered into the market with different subjects also.”
1. It helps the firm to identify threats and early warning signals.
23 Just after declaration of Lok Sabha Elections 2014 results, the Bombay stock
exchange’s price index (Sensex) rose by 1000 points in a day. Identify the
environmental factor which led to this rise giving reason. Also explain any two
other dimensions of business environment. (5 marks)
Ans. Rise in stock market index (Sensex) is economic environment. But Political
environment (declaration of Lok Sabha Elections 2014 results)) led to this rise.
Two other dimensions of business environment:
1. Legal Environment:
2. Technological environment:
24 The court passed an order that all schools must have water purifier for the school
children as
1. Society in general is more concerned about quality of life.
2. Innovative techniques are being developed to manufacture water purifier at
competitive rates.
3. Incomes are rising and children at home are also drinking purified water.
The government is also showing positive attitude towards the water purifier
business.
Identify the different dimensions of business environment by quoting from the
above details.(5 marks)
Ans.

1. Legal environment:
2. Social environment:
3. Technological environment:
4. Economic environment:
5. Political environment:
25 ‘It is common now to see CD-ROM’s, computerized information kiosks, and
Internet/Word Wide Web multimedia pages highlighting the virtues of products.’
Name the dimension of the business environment highlighted by this stateme. (1
mark)
Ans. Technological environment
26 Due to entry of foreign firms, competition for Indian firms has increased,
especially in service industries. Name such service industries. (1 mark)
Ans. Telecommunications, airlines, banking, insurance, etc.
27 “Zero Defect Zero Effect” (ZED) is a slogan coined by the Prime Minister of India,
Narendra Modi with reference to the Make in India initiative launched by the
government. The slogan reflects the efficiency of production processes, i.e. the
products have no defects and the process through which the product is made has
zero adverse environmental and ecological effects. The Zed model aims to make
India the manufacturing hub of the world and prevent the products developed in
India from being rejected by the global market. Moreover, before the initiative
was launched, the limits of foreign direct investment in various sectors had been
relaxed. The application for licences was made available onlinenand the validity
of licences was increased to three years. Various other norms and
procedures were also relaxed by the government.nIn the light of the above
paragraph, identify and explain the major component of New Economic Policy of
1991 that are being referred to by quoting lines from the paragraph.
Ans. The major components of New Economic Policy of 1991 that are being
referred to aren as follows:
● Liberalization: The economic reforms signaled the end of the licence-permit-quota
raj and were aimed at liberalizing the Indian business and industry from all
unnecessary controls and restrictions.
“Moreover, before the initiative was launched, the limits of foreign direct investment
in various sectors has been relaxed.The application for licences was made available
online and the validity of licences was increased to three years. Various other norms
and procedures were also relaxed by the government.”
● Globalization: Globalization means the integration of the various economies of the
world leading towards the emergence of a cohesive global economy.
“The ZED model aims to make India the manufacturing hub of the world and prevent
the products developed in India from being rejected by the global market.”
28 Beni, after completing her MBA, took up a job a multinational company named
‘Fortio’. The company was paying good salary and perks to its employees. The
wages were within the paying capacity of the company that provided the
employees a reasonable standard of living. The company also had a good work
culture and the behaviours of superiors was very good towards their
subordinates. Beni was very happy in this organization, but due to long working
hours she did not have time to cook her meals. She had to depend on outside
found, which was deteriorating her health. She observed that this problem was
faced by many of her colleagues, not only in her company but also in many other
companies. This was because of increase in the number of working women and
non-availability of hygienic home-cooked food. She identified this as a great
opportunity and decided to give up her job to supply packaged home-cooked
food to office goers at a reasonable price. At the end of the day she also
distributing the left-over food in the nearby night-shelters.
1. State the dimension of business environment being discussed above.
2. State the principle of management being followed by ‘Fortio’.
3. Identify any two values being communicated by the company to the society in
the above case. (4 marks)
Ans.
1. Social environment which includes social forces like customs and traditions, values
trends etc. this was because of increase in the number of working women and non-
availability of hygienic home-cooked food.’
2. Remuneration of employees, which states that the overall pay and compensation
should be fair to both employees and the organization.
‘The company was paying good salary and perks to its employees. The wages were
within the paying capacity…standard of living.’
3. Values being communicated by the company to the society are: (Any two)
1. Good work culture
2. Good behavior inhuman interaction
3. Concern for the employees
4. Respect for law
29 Give your views on ‘Economic Environment in India.
Ans:
The economic environment in India consists of various macro-level factors related to
the means of production and distribution of wealth which have an impact on
business. These are
1. Stage of economic development of the country.
2. The economic structure in the form of a mixed economy.
3. Economic policies of Government including industrial monetary and fiscal policy.
4. Economic planning including five-year plans etc.
5. Infrastructural factors such as financial institutions.
30 What is Environmental Scanning? Explain the SWOT technique of Environmental
scanning.
Ans:
Environmental Scanning: The first and foremost step in corporate planning is
environmental scanning. Every organization functions within a specific environment
and the various elements of the environment have a significant influence – on its

functioning.
SWOT stands for
S – Strengths,
W – Weakness,
O – Opportunities, and
T – Threats.
Strength: Strength is an inherent capacity that an organization can use to gain a
strategic advantage over its competitors. For example, superior research and
development facilities enable a firm to develop new products and there by gain a
competitive advantage:
Some of the examples of a company’s strength are:
1. Management
2. Marketing
3. Finance
4. Production
5. Personal
Weakness: Weakness is an inherent limitation or constraint which creates a strategic
disadvantage. For example, over-dependence on a single product is potentially very
risky.
Some of the examples of the weakness of a company are:
1. Management
2. Marketing
3. Finance
4. Production
5. Personnel
Opportunity: Opportunity is a favorable condition in the environment. It enables an
enterprise to consolidate its position. For exam growth of the demand is an
opportunity for the company to grab.
Threat: Threat is an unfavorable condition in the environment. It creates a risk to the
business. For example, growing competition is a threat to the business.
31 An environmental conscious multinational company "AXN Ltd." follows certain well
defined business principles that result in minimizing employee turnover. Following
are some of the important environmental factors followed by 'AXN Ltd.'
1. Honour the law of every country in which it operates.
2. Respect the culture and customs of all nations.
3. Provide clean and safe products to enhance the quality of life throughout the
world
4. Develop a culture in the company that enhances individual creativity and
teamwork while honouring mutual trust and respect between management
and labour.
From the above:
i) Identify and state any one general principle of management and any one
dimension of the business environment.

Ans: Principle of management: Esprit de corps.
As the culture of the company focuses on the developing and honouring of mutual
trust and respect between management and labour, this is the principle followed by
the company. Another principles can be the principle of initiative and stability of
personnel.
Dimension of business environment: Legal environment :
It includes all the legislations passed, administrative orders issued, court judgements
or decisions taken by government or its related offices.
As in the case, it is stated that the firm was very particular about honouring the law of
each country in which it operates. Other dimensions can be social and cultural
environment, ecological environment.
ii) Values being conveyed:
a. Respect for law
b. Cleanliness and hygiene
c. Concern for society and employees
32 Eco-friendly products are gaining power as the consumers’ awareness about
environmental issues has increased over the years and they are conscious about
choosing products that do not have adverse effects on the environment. They are
now more conscious about the carbon emission and climate change effects, and
want themselves to be ‘seen’ as a green advocate among their peers. In such a
scenario, it has become a challenge for the companies as they have to not only
meet the needs of the consumers but also ensure that their products are safe and
environment friendly. At a result, there is growing need for better and advanced
technologies to works as a catalyst in this regard.
1. Identify the relevant feature of business environment being discussed above.
2. Describe briefly any three points which highlight the importance of business
environment and its understanding by managers.
Ans.
1. Inter-relatedness is the relevant feature of business environment which is being
discussed above.
2. The three points which highlighted the importance of business environment and its
understanding by managers are described below:
1. It enables the firm to identify opportunities and getting the first mover advantage:
The dynamic business environment provides numerous opportunities for a business
to evolve as per the changing needs. Therefore, early identification of the
forthcoming opportunities helps an enterprise to be the first to exploit them instead
of losing them to the competitors.
2. It helps the firm to identify threats and early warning signals: sometimes the
changes in the external environment may pose as a threat and hinder a firm’s
performance. An awareness about the business environment helps the managers to
identify such threats on time and take necessary decisions and action.
3. It helps in tapping useful resources as the enterprise designs policies that allow it to
get the resources that it needs so that it can convert those resources into outputs

that the environment desires.
33 Ultra Paint Co. which is manufacturing paints has been enjoying a prominent
Market position as it manufactured best quality paints, made timely payment of
taxes to government. It assembled various inputs like finance, machines, raw
materials, etc. from its environment. But since last year it has been dumping its
untreated poisonous waste on the river bank which has created many health
problems for the people. As a result, the court passed an order to seal the
manufacturing unit of the company.
1. State the importance of business environment highlighted quoting the line from
the above case.
2. Identify any two dimensions of business environment mentioned in the above
case by quoting lines from it.
3. State any two values which have been overlooked by the company? (5 marks)
Ans. (a) Business environment helps in tapping useful resources.
‘It assembled various inputs like finance, machines, raw materials, etc. from its
environment.’
(b) (i) Social environment
‘…it has been dumping its untreated poisonous waste on the river bank which has
created many health problems for the people.’
(ii) Legal environment
‘…the court passed an order to seal the manufacturing unit of the company.’
Value overlooked.
● Environment protection
● Concern for human life
● Respect for law and order
● Social responsibility
34 Philips, a company manufacturing light bulbs incurred heavy expenditure on
Scientific Research and Development and discovered a technology that made it
possible to produce an energy efficient light bulb that lasts at least twenty times as
long as a standard bulb. It resulted in growth and profitability of the company.
1. Identify and state the dimension of business environment mentioned above.
2. State the importance of business environment mentioned above by quoting the
lines.
3. State any one value which the company wants to communicate to the society.
(4 marks)
Ans.
1. Technological environment
It includes forces relating to scientific improvements and innovations which provide
new ways of producing goods and services, and new methods and techniques of
operating a business.
2. Business environment helps a firm to improve its performance.
‘It resulted in growth and profitability of the company.’
3. Value conservation of energy

35 The organic food market in India is grow at 25-30 per cent which reflects a clear
shift in consumer tastes and preferences. The current growth in the organic food
market is driven by multiplicity of factors like rising health consciousness, changing
lifestyles, increase in disposable income and growing availability of organic food
products in shopping malls, retail outlets and online.
1. Identify and explain the features of business environment being referred to here.
2. By quoting phrases from the paragraph identify the various components of
general forces which have led to a growth in the organic food market.
Ans.
1. The features of business environment being referred to in the above case are as
follows:
● Dynamic nature: It is dynamic in nature and keeps on changing due to technological
up gradations, shifts in consumer preferences or increase in competition in the
market.
● Inter-relatedness: All the elements of business environment are closely
interrelated.
Therefore, any change is one element may necessitate corresponding changes in the
other elements as well.
2. The various components of general forces which have led to a growth in the
organic food market are as follows:
1. Social: “rising health consciousness, changing lifestyles”
2. Economic: “increase in disposable income”
3. Technological: “growing availability of organic food products in shopping malls,
retail outlets and on line.”
36 ‘Accent Electronics Ltd.’ was operating its business in Malaysia. The company
started exporting its products to India when the Prime Minister announced
relaxation in import duties on electronic items. The company appointed retailers in
India who had direct on-line links to the suppliers to replenish stocks when needed.
Identify and explain the dimensions of the business environment discussed in the
above case.
Ans: The dimensions of the business environment discussed in the above case are as
follows.
 Political Environment: It includes political factors such as political leadership,
political stability, practices of the ruling party, policies of the government etc.
For example, change in government, or unstable government.
Quotation: “Prime Minister allowed relaxation in import duties on electronic
items”
 Technological Environment: It consists of forces relating to scientific
improvements and innovations, which lead to better production techniques
and methods to produce goods. For example, shift from books to e-books,
telephones to touch screen mobile phones.
Quotation: “The company appointed retailers in India who had direct on-line

links to the suppliers to replenish stocks when needed”
37 With change in the consumption habits of people, Neelesh, who was running a
sweets shop, shifted to the chocolate business. On the eve of Diwali he offered
chocolates in attractive packages at reasonable prices. He anticipated huge demand
and created a website chocolove.com for taking orders online. He got a lot of orders
online and earned huge profit by selling chocolates.
Identify and explain the dimensions of business environment discussed in the above
case.
Ans: The dimensions of the business environment that have been discussed here are
as follows.
 Social Environment: Social environment represents the customs and traditions,
values, culture, social trends, beliefs, ethics of society in which business
operate. For example, religious celebrations provide business opportunities to
many enterprises such as those producing sweets, decoration items, gifts etc.
Similarly, in India a change in social trend towards western lifestyle has
increased the demand for western wear, consumption of fast food, etc.
Quotation: “Change in consumption habits of people.”
 Technological Environment: It consists of forces relating to scientific
improvements and innovations, which lead to better production techniques
and methods to produce goods. For example, shift from books to e-books,
telephones to touch screen mobile phones.
Quotation: “created a website chocolove.com for taking orders online. ”
38 Explain the role of political environment in shaping the business.?
Ans: Political environment includes political factors such as political leadership,
practices of the ruling party, policies, rules and regulations of the government,
political stability etc.
 Political stability builds confidence among the business community while
political instability may bring uncertainty in business activities.
 Hence the political environment holds the power to positively or negatively
impact the business and its activities.
 For example, if the government keeps on changing, and there is no political
instability in the country, then with each change in the government, the ruling
party will keep on bringing its own policies in the country, causing disruptions
and losses in the activities of the business.
 This is because a business functions within the framework of the political
environment, and hence, when the government and its policies change,
businesses are required to understand and follow such changes as well.
 Factors like taxation policy and foreign trade policy affects a business in
unthinkable ways.
 While on one hand, a progreesive and constructive change in these policies
bring a positive change in the business, on the other hand, unstable, and
unthought of changes in these policies disrupts the working and profitability of
that business.

 For example, after globalization, the Government of India allowed many
companies to enter the Indian market to give a boost to the different industries
like food processing industry etc. That paved the way for the entry of
multinationals in India on a large scale
39 Social environment of business is important for a business enterprise". Explain ?
Ans: Social environment represents the customs and traditions, values, culture, social
trends, beliefs, ethics of society in which business operate.
 A business exists within an external social environment, as well as its own
internal social environment. A business is a part of the society in which it
operates, it takes resources from the society, and provides goods and services
in return.
 Social environment includes factors, like taste and preferences of customers,
trends in the market, consumption habits, the language and culture of people
in the society etc. The management needs to have a constant and vigil check on
the changes in the social environment, so as to exploit the right opportunities
and to mitigate prospective threats.
 Cooperation and coordination between a firm and the society will flourish as
well as add value to an enterprise, whereas failure to adopt changes of social
environment will lead to the shift of customers from their firm to the other
firm. This shift of consumer intensely impacts the long term growth and
survival of business.
 For example, with greater awareness among consumers about their rights,
businesses are more concerned about the quality of goods they sell, hence they
are more cautious regarding the quantity, quality and pricing of the goods.
 Also, the change in consumer habits led to the inclination of consumers
towards healthy products. This has created abundant opportunities for
businesses to add and create products that could match the needs and
preferences of the consumers.
 Moreover a business conforming to social values, and ethics in business is likely
to be more beneficial than a business who violates the ethics and social
principles.
Therefore, we can say that a social environment is very important for a business.
40 Enumerate any ten Positive impacts of liberalization and globalization.
Ans: The positive impacts of liberalization and globalization are as follow:
A. Increased Collaborations: One characteristic of globalisation is the
encouragement of entrepreneurial collaborations in order to ensure fast
modernisation, development, and technical improvement.
B. Process simplification: Liberalisation has simplified the procedures of import
and exports. Hence simplification in regards to registration, setting up of businesses,
licensing was made possible. This leads to higher motivation, and the saving of time,
energy and money on the part of business enterprises.
C. Increased competition: Increase in the number of Indian firms and entry of
foreign companies has increased competition. Such increase in competition has

benefited both, the firm as well as the customers.
D. More demanding customers: Increase in the number of enterprises gives
consumers wider choice of products leading to rise in expectations and demands.
E. Rapidly changing technological environment: Fast changing technology
requires companies to install the latest machinery, adopt latest techniques of
production leading to an increase in investments in the business. Hence, LPG made
the firms aware of the fact that only change could make them survive in the
competitive market.
F. Necessity for change: With change in government policies business had to
modify their policies and practices, invest in research and development, innovation
etc.
G. Need for developing human resource: With change in technology, business
enterprises need to educate and train their staff so that they are competent to
handle changes, thus enhancing the quality of the labor force.
H. Market orientation: With increased awareness among consumers business
enterprises had to shift the product oriented operations to market oriented
operations.
I. Loss of budgetary support to the public sector: Public sector had to run in
competition with the private sector. Therefore, they had to organise their own
resources and functions efficiently.
J. Opportunities: It enables the firm to identify opportunities and get the first
mover advantage. The positive external changes provide opportunities to a business
organisation to improve its performance. Positive change in policies helps the
business in tapping opportunities by altering the way and methodology with which
they perform business.
K. Inflow of foreign capital: With globalisation, work and trade has been made
possible outside the national boundaries. This benefited the country in increased
exports and the inflow of foreign capital.
41 Explain any five negative impacts of liberalization and globalization.
Ans: Following are the negative effects of liberalization and globalization.
 Threats from multinational companies (MNCs) : With the arrival of
multinationals it is becoming difficult for small and medium business units to
even survive. The entry of multinationals in the Indian markets act as a threat
for the domestic firms. There have been instances, where the entry of new
MNCs have led to the exit of domestic firms from the market.
 Destabilization of protected environment: With easier entry of multinational
companies, the Indian business environment is fast losing its protective shield.
Even manufacturers of Maruti cars could not retain their market share and had
to remodel their products and announce heavy price reductions from time to
time.
 Decline in public sector: Public sector is losing markets and their capacity
utilization has declined, hampering the pace of the country's technological and
economic growth.

 Sellers' market turned into buyers' market: With the entry of foreign goods
and services, shortage of goods, which was a boon for the sellers, has now
turned into surplus. Resulting in lower revenue and profits. Buyers dominate
the market, as they are free to make choices.
 Tremendous redistribution of economic power and political power:
Tremendous redistribution of economic power and political power leads to
destabilising effects on the economy. Despite the continuing emphasis on
promoting global prosperity and achieving a more “just world,” negative
aspects of globalization remain evident in our globe.
42 'Explain 'fiscal reforms' and 'monetary reforms' as per economic change initiated by
the Government of India since 1991.
Ans: The explanations are:
a. Fiscal Reforms
 There has been a reduction in the taxes and simplification of the structure of
taxes on individual incomes since 1991. Fearing a heavy burden and complex
nature of taxes, people would often evade taxes.
 Reforms have also been made in taxes levied on commodities. The Goods and
Services Tax which was passed in 2016 and came to effect in 2017, was
expected to generate additional government revenue and prevent tax evasion.
 Measures have been taken for the reduction in the fiscal deficit.
 Decrease in subsidies has also been made.
b. Monetary Reforms
 Phased reduction of statutory liquidity ratio (SLR).
 Private sector banks are allowed to set up new branches.
 Banks have now been allowed access to the capital market for raising capital.
 Permission for disinvestment (up to 49% of total equity).

CHAPTER 4 PLANNING
1 How does planning provide direction?(Any Three)

Ans:(a) Planning is goal oriented.
(b) Continuous process.
(c ) Pervasive function
2 Planning strangulates the initiative of the employees and compels them to work
in an inflexible manner” Discuss.
Ans: Planning reduces creativity
3 Which limitation of planning suggest that the employees stop thinking and
become the blind followers of Plan?
Ans: Planning reduce creativity.
4 Mc Donald does not give its franchise to any other company which is running
food business. This is related to which type of plan/
Ans: Policy
5 In which step of planning process the planners make prediction and assumptions
regarding future?
Ans : Setting up of planning premises for all the alternatives.
6 State how planning ‘leads to rigidity’?
Ans. The existence of plan puts managerial activities in a rigid framework.
Programmes are carried out according to plans. Managers become more concerned
with observing the rules and procedures as laid down in the plan rather than achieving
the goals.
7 State how planning reduces creativity?
Ans. Planning makes managers and workers a puppet. They are expected to follow the
guidelines laid down in plans. Everything is pre determined. This discourages the
creative thinking and initiative on the part of people working at various levels in the
organization.
8 Planning always leads to success’. Do you agree? Give reasons in support of
your answer.
Ans. No, sometimes planning fails because of:
(i) Rigidity (ii) Time consuming
9 Inspite of many advantages, state how planning can be detrimental?
(HOTS; All India 2008)
Ans. Business environment is dynamic in nature, i.e. nothing is constant. Sometimes
planning fails to foresee the changes and there are obstacles in effective planning.
Hence, planning can be detrimental
10 How does planning not work in a dynamic environment and does not guarantee
success. Explain.
Ans. (i) Planning does not work in dynamic environment The environment is not
static. It keeps on changing. The organisation has to constantly adapt itself to such
changes. It becomes difficult to access future trends in the environment. Hence,
planning cannot foresee everything and fail to work in dynamic environment.
(ii) Planning does not guarantee success When plans are drawn, they need to be
properly implemented. Mere drawing plans does not lead to success. Also, a plan
which had been successful earlier may not work out next time, since there are many
factors which may change for the next planning period and make the plans ineffective.
11 Planning lays down the base for other functions of management which feature of
planning is highlighted here?
Ans: Planning is a primary function of management
12 An auto company, C Ltd. is facing a problem of declining market share due to
increased competition from other new and existing players in the market. Its
competitors are introducing lower priced models for mass consumers who are
price sensitive. For quality conscious consumers, the company is introducing new
models with added features and new technological advancements.
Questions.
(i) Prepare a model business plan for C Ltd. to meet the existing challenge. You need
not be very specific about quantitative parameters. You may specify which type of
plan you are preparing.
(ii) Identify the limitations of such plan.
(iii) How will you seek to remove these limitations?
Ans:-
i) C Ltd can make use of ‘strategy’ as a type of plan. The various steps involved in
preparing this plan are:
(a) The company should set up its objectives after considering quality expectations of
consumers and technological changes.
(b) Like it’s rival, it can cut down its prices without compromising the quality.
(c) It may use sales promotional tools like full finance and rebate to capture the
market share again.
(ii) The limitations of such plan are:
(a) It is a costly process.
(b) It is a time consuming process.
(c) It may not work in a dynamic environment.
(d) It may lead to rigidity in operations.
(iii) The given limitations can be overcome through following measures:
(a) An organisation can keep a strict watch on time limit to achieve the target.
(b) Amount to be spent should be pre-planned by preparing budgets.
(c) Environment should be properly scanned to minimise the risk of competition.
(d) Plan should be flexible, so that there is a scope for initiative and creativity
13 Which quality of employee is restricted by the act of planning?
Ans
i) Stability in prices
ii) Regular Supply of Goods
iii) Fulfilling social responsibility
iv) Control on hoarding & Black- Marketin

14 Removal of mobile towers from residential area is being planned by the
government to promote which value?
Ans
i) Reduction in social responsibilities due to non-cooperation in social work.
ii) Increase in production due to efficient employees
iii) Deterioration in Health of employees due to prolonged working hours.
iv) Reduction in employment opportunities for local persons
v) Increase in salary will increase social respect/standard of living
15 Government is planning to construct a ware house in remote area to store
necessary goods. So as to make them available even at the time of bad weather
regularly. Which values are being considered here to be achieved by the
government?
Ans
i) Bad effect on students health.
ii) Deprivation of Morality.
iii)Instigation of social evil
16 In order to reduce the cost, an organization is planning the following:
a) To reduce the charities to the social and religious institution.
b) To arrange skilled workers from outside inspite of semi-skilled local employees.
c) To increase the working hours.
d) To increase the rate of remuneration.
Which value will be affected by the decisions?
Ans
i) Lack of Feeling of oneness in an organization.
ii) Lack of Manager’s faith in his employees.
iii) Wastage of time
17 Suhasini a home science graduate from a reputed college has recently done a
Cookery course. She wished to start her own venture with a goal to provide ‘health
food’ at reasonable price. She discussed her idea with her teacher (|mentor) who
encouraged her. After analyzing 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 both weighed the pros and coris of both the
shortlisted optins.
1. Name the function of management being discussed above and give any one of its
characteristics.
2. Also briefly discuss any three limitations the function discussed in the case.
(5 marks)
Ans.
1. Planning.
Characteristic of planning
Planning focuses on achieving objectives
1. Limitation of planning
1. Planning leads to rigidity:

2. Planning reduces creativity:
3. Planning is a time-consuming process
18 Rahul, a worker, is given a target of assembling two computers per day. Due to his
habit of doing things differently, an idea struck him which would not only reduce the
assembling time of computers but would also reduce the cost of production of the
computers. Rahul’s supervisor instead of appreciating him, ordered him to complete
the work as per the methods and techniques decided earlier as nothing could be
changed at that stage.
The above para describes one of the limitation of planning function of management.
Name and explain that limitation.
Ans. The para given in the question expresses the limitation of planning which is
explained as unde(1)
Planning reduces creativity Plans are usually formulated at the top level. Middle and
lower level managers are expected to follow them. Therefore, much of initiative and
creativity inherent in them gets lost. They do not take any initiative to make changes
in the plans according to the changes prevailing in the business environment
19 Explain any five limitations of planning.
or
State any four limitations of planning.
Ans. Limitations of planning are as follows:
(i) Planning leads to rigidity In an organisation, a well-defined plan is drawn up with
specific goals to be achieved within a specific time frame. These plans then decide the
future course of action and managers may not be in a position to change it. This kind
of rigidity in plans may create difficulty.
(ii) Planning may not work in dynamic environment The environment is not static, it
keeps on changing. The organisation has to constantly adapt itself to such changes. It
becomes difficult to access future trends in the environment. Hence, planning cannot
foresee everything and fail to work in dynamic environment.
(iii)Planning reduces creativity Plans are usually formulated at the top level. Middle
and lower level managers are expected to follow them. Therefore, much of initiative
and creativity inherent in them gets lost. They do not take any initiative to make
changes in the plans according to the changes prevailing in the business environment.
(iv) Planning involves huge costs When plans are drawn up, huge costs are involved
in their formulation. These may be in terms of time and money. According to Koontz
and O’ Donnell,
‘Expenses on planning should never exceed the estimated benefits from planning’.
(v) Planning is a time consuming process Planning is a lengthy process. It consumes a
lot of time in defining objectives, collection of data, analysis of data and choice of
alternatives. Sometimes plans to be drawn up take so much of time that there is not
much time left for their implementation.
20 Distinguish between goals and objectives.
Answer:
Goals Objectives
1. Goals are the overall or collective 1. Objectives are specific and particular
ends of the organization. ends of the organization.
2. Goals are not expressed in numerical 2. Objectives are always expressçd in
terms. numerical terms.
3. Goals are generally made for the long 3. Objectives are mostly made for the
term. short term and these must be achieved
within a specific time limit.
4. Example – Increase in sales or 4. Increase in sales by 10% in 6 months’
becoming the leader in the market. time or increase in market share by 20%
in 1 year.
21 “Planning is not a guarantee of success of a business.” Comment.
Answer:
It is right to say that planning is not a guarantee of the success of a business because
the planning function is based on certain assumptions regarding the future and no
one care to give a guarantee that assumptions regarding the future are a hundred
percent accurate. The planning function suffers from certain limitations which may be
lack of accuracy, cost problem, delay in action, etc.
22 Explain the nature and characteristics of planning.
Or
“No enterprise can achieve its objective without systematic planning”. Do you agree
with the statement?
Answer:
Characteristics of Planning:
1. Goal Oriented: Goals or objectives are the end results towards which activity is
directed. The first stage of planning is the conscious and explicit statement of the
ultimate objectives.
2. Primacy of Planning: Among various functions of management planning occupies
the foremost position. Planning precedes the execution of all other managerial
functions because it provides a frame of reference for future decisions. Allows
managers to organize staff directly and control the activities necessary to achieve the
organizational goals.
3. Pervasiveness of Planning: Planning is needed for all activities at all levels although
the nature and extent of planning vary with the delegated authority or position a
person is holding in the organizational hierarchy and with the board guidelines
provided by his superiors.
4. Intellectual Process: Planning involves logical thinking and decision making. It
implies determining what is to be done; how and when it is to be done and by whom.
All these decisions require ability, experience, and foresightedness on the part of the
management.
5. Continuous function: Planning is a continuous activity. As a matter of fact, the
planning process continues so long as an enterprise is in existence.
6. Flexibility: Effective plans have an element of flexibility! Management can’t afford
to follow rigid plans in the era of fast changes in the technology market, government
policy, etc.
23 Why is planning necessary for effective management? Give reasons.
Answer:
Planning is important for better management of business planning determines
objective, decides the course of action, removes uncertainty results in economics in
operation, and makes control possible its importance is analyzed as below.
1. Takes care of future uncertainties: Future is full of uncertainties planning takes
care of all future uncertainties and minimizes business risks since it makes effective
use of forecasting techniques.
2. Focuses attention on objectives: All planning is directed towards achieving the
objectives of an enterprise. Planning makes these objectives more concrete and
tangible by determining the program’s policies, procedures that provide guidelines to
the employees to achieve these objectives.
3. Facilitates decision making: Decision making is the core of planning. It is the
process of developing and selecting a course of action from among the various
alternatives available. Planning provides a framework for decision-making by
specifying the organizational objectives and planning premises.
4. Facilitates Control: Controlling is the process that measures current performance
against desired standards to ensure that the objectives are attained according to
plans. Control is always exercised in the light of planning which provides performance
standards in quantitative terms.
5. Promotes efficiency: Proper planning ensures better utilization of organizational
resources. Planning involves the selection of the best or most profitable course of
action. This reduces the idle time for workers, machines, and so on.
6. Helps in Co-ordination: Planning is necessary for the organization as a whole.
Derivative plans are prepared for each department within the limits of the master
plan. Thus planning leads to the coordination of activities of all the departments in
order to achieve the basic objective of the organization.
24 Give the meaning of "Method" as a type of plan.
Ans: The prescribed approach or manner in which a work must be completed is
referred to as the method.
25 Name and state the aspect of financial management that enables one to foresee the
fund requirements both in terms of 'the quantum' and 'in terms of the timings".
Ans: "Financial Planning" is the component of financial management that provides
foresight of fund requirements both in terms of "quantity" and "timings."
Financial planning is creating a blueprint for a company's entire financial operations so
that the appropriate quantity of funds are available for various operations at the
appropriate time.
26 Define 'Objective'?
Ans: Objectives are desired future positions that the management would like to reach.
These are quantitative and measurable in nature.
27 Define 'Strategy".
Ans: A strategy refers to future decisions and actions, defining the organization's
direction and scope in the long run
28 It is deciding in advance what to do and how to do it. It is one of the basic
managerial functions. It requires that before doing something, the manager must
formulate an idea of how to work on a particular task. This function is closely
connected with creativity and innovation. It seeks to bridge the gap between where
we are and where we want to go and is performed at all levels of management.
In spite of this, the function of management referred above has a number of
limitations.
Explain any two such limitations.
OR
State any three limitations of the planning function of management.
Ans: The following are the limitations of planning.
 Planning leads to rigidity: A well-defined plan is put up in an organization with
specified goals to be completed within a specific time frame, but management
may not be able to change it. As the business environment is, dynamic
managers need to be given some flexibility to cope up with the changed
circumstances.
 Planning may not work in a dynamic environment: Since planning is dependent
on anticipating future events, and because the future is uncertain and dynamic,
the organization must react to changes. However, planning will not be able to
adequately predict future events.
 Planning reduces creativity: Top management does Planning and middle
management does implementation of plan but they are not allowed to deviate
from the plan and thus creativity of these managers are reduced.
29 Enumerate six points of importance of planning.
Ans: Importance of planning is as under:
Planning provides direction: Planning provides guidance for action by defining how
the task will be done in advance. Planning ensures that goals are clearly specified so
that the best course of action may be devised. Once the strategies are in place, the
department and individuals may work together.
Planning reduces the risk of uncertainty: Planning is a task that allows the
management to see into the future and predict changes. Changes and occurrences
cannot be avoided, but managers may anticipate them and adapt their strategies
accordingly by deciding plans and courses of action ahead of time.
Planning reduces overlapping and wasteful activities: The basis for coordinating the
actions and efforts of several divisions, departments, and individuals is planning. It
eliminates ineffective and unnecessary activities, prevents misunderstandings, and
assures clarity of thinking and action.
Planning promotes innovative ideas: The first role of management is planning.
Managers are given the opportunity to generate fresh ideas, which can then be turned
into tangible strategies. It directs all future actions that will lead to the company's
growth and prosperity.
Planning facilitates decision-making: Setting goals and forecasting future situations

are all part of planning, which aids in making sensible judgments among various
options.
Planning establishes standards for controlling: Planning establishes the benchmarks
against which actual performance is assessed. As a result, planning is a must for
controlling.
30 "Planning focuses on achieving objectives", Explain.
Ans: Planning is a goal-oriented process that aids in the definition of objectives and
the creation of action plans to attain those objectives. As a result, planning focuses on
defining what has to be done and how it should be done. If the planning isn't focused
on achieving predetermined organizational or corporate goals, it's pointless.
31 Somnath Ltd. is engaged in the business of export of garments. In the past, the
performance of the company had been up-to the expectations. In line with the
latest technology, the company decided to upgrade its machinery. For this, the
Finance Manager, Dalmia estimated the amount of funds required and the timings.
This will help the company in linking the investment and the financing decisions on a
continuous basis. Dalmia therefore began with the preparation of a sales forecast
for the next four years. 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 alternative sources from outside.
Justify the financial concept discussed in the above para. Also, state the objectives
to be achieved by the use of financial concepts, so identified.
Ans: The concept stated is Financial Planning. It involves designing the blueprint of the
overall financial operations of a company such that the right amount of funds are
available for various operations at the right time. That is, it tends to forecast what
amount of funds would be required at what time as per the growth and performance
of the company.
Objectives of Financial Planning
Proper financial planning is a prerequisite for the successful growth of any
organization, regardless of whether they are new or existing ones. The two main
objectives of financial planning are as given below:
 Ensure timely availability of funds: Financial planning involves estimating the
right amount of funds required for various business operations and the time
when these funds would be required. It also entails determining the most likely
sources of funding.
 Appropriate financial management: This entails avoiding both insufficient and
surplus financial circumstances. On the one hand, insufficient funds impede the
firm's smooth operations; on the other hand, surplus funds increase the cost of
doing business and encourage excessive and wasteful spending. As a result,
financial planning guarantees that funds be used to their full potential.
32 Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells
the items in smaller quantities in attractive packages. Performance of the company
has been up to the expectations in the past. Keeping up with the latest packaging

technology, the company decided to upgrade its machinery. For this, the Finance
Manager of the company, Mr. Vikrant Dhull, estimated the amount of funds
required and the timings. This will help the company in linking the investment and
the financing decisions on a continuous basis. Therefore, Mr. Vikrant Dhull began
with the preparation of a sales forecast for the next four years. 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. For the
remaining funds he is trying to find alternative sources.
Identify the financial concept discussed in the above paragraph. Also, state any two
points of importance of the financial concept, so identified.
Ans: Financial planning is the financial idea addressed in this paragraph. Its
significance can be seen in the following factors:
a. Assists in dealing with unforeseen circumstances: Financial planning aids in
projecting future events. As a result, an organization will be more prepared to deal
with adverse scenarios.
b.Assists in avoiding surprises and shocks: Financial planning allows an organization
to detect future situations of fund shortages or surpluses. As a result, it trains
managers for such scenarios ahead of time.
33 How can (i) Political climate and (ii) Policies of competitors obstruct planning?
Ans: The following are the explanations:
I. Planning stymied by the political climate:
When the government restricts corporate practises or implements new trade
regulations, business plans may be disrupted. Furthermore, political unrest has an
impact on corporate strategies. Consider a change in taxation policy, it may obstruct
all the plans that a firm has prepared.
II. Planning can be obstructive owing to rival policies:
Changes in corporate policy may be influenced by competitor policies. For example, a
corporate enterprise's pricing policy may alter as a result of competitors' discounting
practises.
34 Two years ago Nishant, completed his degree in Textile Engineering. He worked for
sometime in a company manufacturing readymade garments. He was not happy in
the company and decided to have his own readymade garments manufacturing unit.
He set the objectives and the targets and formulate action plan to achieve the same.
One of his objectives was to earn 80% profit on the amount invested in the first
year. It was decided that raw materials like cloth, thread, buttons etc, will be
purchased on two months credit. He also decided to follow the steps required for
marketing the products through his own outlets.
He appointed Ritesh as a production manager, who decides the exact manner in
which the production activities are to be carried out. Ritesh also prepared a
statement showing the requirement of workers in the factory throughout the year.
Nishant informed Ritesh about his sales target for different products area wise for
the forthcoming quarter.
A penalty of Rs. 200 per day was announced for the workers who found smoking in

the factory premises.
Quoting lines from the above para identify and explain the different types of plans
discussed.
Ans: The different types of plans discussed in the paragraph are listed below.
a.Objective: The final results that management aims to attain through its activities are
referred to as objectives. It is to be expressed in specific terms i.e., they should be
measurable in quantitative terms, in the form of a written statement of desired
results to be achieved within a given time period.
Quotation: "One of his objectives was to earn 80% profit on the amount invested in
the first year"
b. Policy: Policies are broad pronouncements that steer people's thoughts or energies
in a specific direction. It serves as the foundation for interpreting strategy. It expresses
a general attitude or a plan of action to take in a specific situation.
Quotation: "It was decided that raw materials like cloth, thread, buttons etc. will be
purchased on two months credit.”
c.Procedure: A process is a set of routine steps that must be done in a specific order in
order to enforce a policy.
Quotation: “He also decided to follow the steps required for marketing the products
through his own outlets.”
d.Method: Methods define the prescribed ways or manners in which a work can be
completed in light of the goal. It evaluates one stage of a larger operation and
specifies the next step to complete the given task.
Quotation: “Who decides the exact manner in which the production activities are to
be carried out.”
e.Rule: A rule is a set of instructions or a precise declaration that specifies what
should be done and what should not be done. The simplest sort of plan is a rule.
Quotation: “A penalty of Rs. 200 per day was announced for the workers who found
smoking in the factory premises.”
f.Budget: A budget is a numerical description of projected results for a specific time
period in the future.
Quotation: "Ritesh also prepared a statement showing the requirement of workers in
the factory throughout the year"
35 Is planning actually worth the huge costs involved? Explain.
Ans: Planning comes at a high price in terms of both time and money. It involves
analysis, research and scientific calculations that involve huge costs. However, despite
being an expensive function, it is a very basic and essential function of an
organization.
Despite the astronomical expenditures, we may assert that planning is a critical action
due to the emphasized factors.
Renders Direction: The aims and objectives that must be met are clearly stated in the
planning. As a result, it serves as a guide for future activities. It directs the activities of
several departments inside the organization. They advise managers on what has to be
done, what path to take, and how to attain the goals. It ensures that the path taken to

achieve objectives is the proper one. Planning also ensures that the organization's
many departments work together to attain the desired goals.
Risk Prevention: By steering an organization in the proper path, it empowers its
leaders to analyze and predict changes. As a result, the probability of the anticipated
events is reduced. Planning shows how to deal with situations, which may arise in the
due course of management, though it does not fully eliminate the problems.
Minimize Overlapping: As the managers are well comprehended with the policies and
plans of the organization, they coordinate the activities together to reach the
objectives. As a result, work overlap is reduced. Furthermore, any resource waste that
occurs as a result of overlapping is decreased. Planning ahead of time ensures that
there will be no misunderstandings and that the activity will be completed
successfully.
Promotes Creativity: Planning is an important part of any organization's success. It
entails establishing strategies and plans, which necessitates creativity. It is a key
activity that necessitates the highest thinking talents and inventiveness from
managers. It encourages management to come up with fresh ideas in order to achieve
the objectives.
Assists in Decision Making: Planning is the foundation for making decisions. Planning
entails analyzing the future, evaluating potential courses of action, and selecting the
best option based on the goal. As a result, managers can make more sensible
judgments by following a proper planning procedure.
Planning Is Necessary For Controlling: Planning lays out the goals that must be met.
As a result, it establishes the benchmarks against which the performance is measured.
It also aids in detecting whether there is any divergence from the stated objectives,
making remedial action easier. As a result, we may conclude that, notwithstanding the
expenditures, planning is a critical role in management that is well worth the
investment.
36 How is planning forward looking?
OR
Planning is futuristic’ explain?
Ans. Planning is always for the future and never for the past. It involves peeping in to
future, analyzing and preparing plans accordingly. Thus, planning is futuristic as it
helps in meeting likely future events effectively and efficiently to best advantage of
the organisation.
For example, on the basis of sales forecasts, annual plans for production and sales are
drawn.
37 Planning involves decision making”. Explain.
Ans. Planning is essentially a process of making choice from among various
alternatives. There will be no need for planning, if there is only one course of action,
because there will be no choice. Hence need for planning depends on the availability
of alternatives. A manager, after examining and evaluating the various alternatives,
chooses the most appropriate one.
38 Defining ‘organizational objectives’ is the first step in the process of planning.

Explain, in brief, the other steps of this process.
OR
Explain the steps involved in the process of planning.
Ans. It has been rightly said that defining organizational objectives is the first step in
the
process of planning. Other steps in the process of planning a as follows:
(i) Establish planning premises
This step involves the establishment of planning premises in which plans are, expected
to operate. Planning premises are assumptions relating to future conditions and
events which are likely to have an effect on achievement of goals
(ii) Identifying alternative courses of action
Under this step, various possible alternatives for reaching objectives should be
identified by managers.
(iii) Evaluating Alternative Courses
This step involves deep evaluation of various alternative courses of action in light of
the various objectives to be achieved. The positive and negative aspect of each
alternative is evaluated.
(iv) Selecting an alternative
This step involves the selection of the most optimum and realistic plan with least
negative results.
(v) Implement the plan
Under this step the best selected plan is put in to action.
(vi) Follow up
Under this step, it is monitored whether the plans are being implement and whether
the activities are being performed according to the schedule.
39 Differentiate between procedures and rules.
Ans.
DIFFERENCE BETWEEN PROCEDURES AND RULE
basis Procedures Rules
1. Meaning Procedure is a guide for action in Rule is a code of conduct
a given situation. governing or restricting
flexibility or discretion
2. Nature Procedures are specified in Rules do not place activities in
chronological order. chronological order
3. Purpose The purpose of procedure is to The purpose of rule is to
facilitate and simplify the operation s maintain discipline in an
and eliminate duplication. organization.
4. Scope The scope of procedures is wide A rule has no procedure.
because it has Its own rules and
regulations.
40 Give an example each of any three limitations of planning which are beyond the
control of an organization.
Ans. Limitations of planning on which the organization does not have a significant
control
are as follows:
S.No. Limitations Examples
1. Planning may not work Frequent changes in the political or

in dynamic environment. economic environment may upset in
the financial plans.
2 Planning leads to rigidity Following a pre-decided plan when

circumstances have changed.
3. Planning involves huge costs Incidental expenses such as expenses on

boardroom meetings and discussions
with professional experts involve huge
cost.
41 In order to reduce the cost, an organization is planning the following:

a) To reduce the charities to the social and religious institution.
b) To arrange skilled workers from outside inspite of semi-skilled local employees.
c) To increase the working hours.
d) To increase the rate of remuneration.
Which value will be affected by the decisions?
Ans
i) Lack of Feeling of oneness in an organization.
ii) Lack of Manager’s faith in his employees.
iii) Wastage of time
42 Suhasini a home science graduate from a reputed college has recently done a
Cookery course. She wished to start her own venture with a goal to provide ‘health
food’ at reasonable price. She discussed her idea with her teacher (|mentor) who
encouraged her. After analyzing 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 both weighed the pros and coris of both the
shortlisted optins.
1. Name the function of management being discussed above and give any one of its
characteristics.
2. Also briefly discuss any three limitations the function discussed in the case.
(5 marks)
Ans.
1. Planning.
Characteristic of planning
Planning focuses on achieving objectives
2. Limitation of planning(DISCUSS IN DETAIL )

1. Planning leads to rigidity:
2. Planning reduces creativity:
3. Planning is a time-consuming process
43 A company is manufacturing garments. The manager wants to increase profits by
purchasing new high speed machines or increasing the sale price or using waste
material in manufacturing stuffed toys. He decided that ‘using waste material’ to
increase the profit is the best solution for him.
1. Identify the concept of management involved.
2. Mention the steps involved in the above process by quoting the line from the
question.
3. To complete the process of the concept identified in (a), what two next steps
does the manager have to take? Explain. (6 marks)
Ans.
1. The concept of management involved is PLANNING.
2. Steps involved are:
● Setting objectives : increasing profits
● Developing planning premises : making certain assumptions about future.
● Identifying alternative courses of action:
● Purchasing new high speed machines, or
● Increasing the sale price, or
● Using waste material in manufacturing stuffed toys
● Evaluating alternatives and selecting an alternative :
3. Further steps to complete the process of planning:
● Formulating derivate plans:
● Implementing the plan and follow-up-action:
44 During partition, Kundan Lal came to Mumbai from Lahore with a lot of wealth.
Keeping in view his innate ability to visualize and create things, he decided to work
as a junior assistant in a film studio. Over a period of time, as he gained experience
and his work was well acclaimed, he decided to set up his own film studio. Initially
he was himself looking into every aspect of the business, but as his work increased
manifolds and his own productivity reduced with age, he hired Jummy as manager.
Jimmy being immature in his work started giving bookings for the studio
haphazardly. He would never decide anything in advance or do any kind of
forecasting of events. This led to lot of confusions and conflicts. As a result, the
goodwill earned by Kundan Lal over the years began to decline.
1. Identify and explain the function of management which Jimmy failed to perform
by quoting lines form the paragraph.
2. Describe briefly any two features of the function of management as identified in
part (a).
Ans.
1. Planning is the function of management which Jimmy failed to perform.
Planning is deciding in advance what to do, how to do, when to do and who has to do

it. It is one of the basic managerial functions.Thus, it involves setting objectives and
developing an appropriate course of action to achieve those objectives.
2.. The two features of the planning function of management are as follows:
1. Planning is pervasive:
2. Planning involves decision-making:
45 After completing a diploma in Bakery and Patisserie, Payal sets up a small outlet at
Goa Airport to provide a healthy food option to the travellers. To begin with, she
Has decided to sell five types of patties, three type of pizzas and low sugar muffins
in four flavours. Thus, by deviding in advance what to do and how to do, she is able
to reduce the risk of uncertainty and avoid overlapping and wasteful activities. But
sometimes her planning does not work due to some unavoidable circumstances like
cancellation of flights due to bad weather conditions, government alert etc. which
adversely affects her clientele.
1. Identify and explain the points highlighting the importance of planning mentioned
in the above paragraph.
2. Describe briefly the limitation of planning which adversely affects Payal’s
business.
Ans.
1. The paints highlighting the importance of planning mentioned in the above
paragraph
are described below:
1. Reduces the risk of uncertainty:
2. Avoiding overlapping and wasteful activities:
2. The limitation of planning which adversely affects Payal’s business is:
1. Planning may not work in a dynamic environment:
46 ABC Ltd. has a plan of increasing profits by 20%. It has devoted a lot of time and
money to this plan. But the competition starts increasing, so it could not change its
plan to beat its competitors because huge amount of money had already been
devoted to the pre-decided plan. It caused losses to the company. Explain any two
limitations of planning highlighted in the above case. Also, quote the lines
from it. (4 marks)
Ans.
1. ‘ABC Ltd. has devoted a lot of time and money to its plan.’
Planning is a time consuming process. It also involves huge costs.
1. ‘The competition starts increasing, so it could not change its plan to beat its
competitors because huge amount of money had already been devoted to the
pre-decided plan.’
Planning leads to rigidity. Following a pre-decided plan, when circumstances change,
may not turn out to be in the organization’s interest.
47 In ‘Chak De India’ movie, Shahrukh Khan becomes the coach of the girls’ hockey
team. He knows that he has to prepare the girls for the international hockey
matches and bring the world cup after winning. For this he prepares a long-team

plan and thinks the ways how to bet the competitors. He coaches the girls to play in
different ways like defensive, offensive, etc. at the outset of a match he explains
who will open the match, and how the ball will be passed by one player to another
step by step.
Identify four types of plan that are highlighted in the above case, quoting the lines
from it. (4 marks)
Ans.
1. Objective
‘…bring the world cup after winning.’
2. Strategy
‘For this he prepares long-term plan and thinks the ways how to beat the
competitors.’
3. Method
‘He coaches the girls to play in different ways like defensive, offensive, etc.’
4. Procedure
‘At the outset of a match he explains who will open the match, and how the ball will
be passed by one player to another step by step.’
48 An electronic company is facing a problem of declining market share due to
increased competition from other new and existing players in the market. Its
competitors are introducing lower price models for mass consumers who are price
sensitive. For quality conscious consumers, company is introducing new model LED
TV and DVD players with added features and new technological advancements. For
this, the company raises extra funds Rs. 5 crore form banks. Name the type of plan
the company is preparing. State the steps which the company follows to implement
this plan quoting the line from the above para. (4 marks)
Ans.
The type of plan needed to be prepared under this situation is ‘Strategy’.
Steps involved in preparing this plan are:
(i) Determining long-term objectives:
(ii) Adopting a particular course of action:
(iii) Allocating resources necessary to achieve the objectives:
49 Suhasini, a home science graduate from a reputed college, has recently done a
cookery course. She wished to start her own venture with a 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 short listed 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 short listed
options.
1. Name the function of management being discussed above and give any one of
its characteristics.
2. Also briefly discuss any three limitations of the function discussed in the case.
Answer:
1. Planning is the function of management which is being discussed above.

Planning involves decision-making: Planning essentially involves application of
rational thinking to choose the best alternative among the various available
alternatives in order to achieve the desired goals efficiently and effectively.
2. The limitations of planning are described below:
o Planning may not work in a dynamic environment: The business environment is
dy¬namic in nature. Every organisation has to constantly adapt itself to changes
in its environment in order to survive and grow. However, it is difficult to
anticipate all the likely future changes in the environment with utmost
accuracy. Hence, even with planning, everything cannot be foreseen.
o Planning reduces creativity: The top management undertakes planning of
various activities whereas the other members are expected to merely
implement these plans. This restricts the creativity of the middle level managers
as they are neither allowed to deviate from plans nor are they permitted to act
on their own.
o Planning involves huge costs: The process of planning involves huge cost in
terms of time and money as detailed planning is based on a series of scientific
calculations. Moreover, it may include a number of related costs as well, like
expenses on boardroom meetings, discussions with professional experts and
preliminary investigations to find out the viability of the plan. As a result, the
expenses on planning may turn out to be much more than benefits derived
from it.
50 Two years ago, Madhu completed her degree in food technology. She worked for
sometime in a company that manufactured chutneys, pickles and murabbas. She
was not happy in the company and decided to have her own organic food processing
unit for the same. She set the objectives and the targets and formulated an action
plan to achieve the same.
One of her objectives was to earn 10% profit on the amount invested in the first
year. It was decided that raw materials like fruits, vegetables, spices, etc. will be
purchased on three months credit from farmers cultivating only organic crops. She
also decided to follow the steps required for marketing of the products through her
own outlets. She appointed Mohan as the Production Manager who decided the
exact manner in which the production activities were to be carried out. Mohan also
prepared a statement showing the number of workers that will be required in the
factory throughout the year. Madhu informed Mohan about her area wise sales
target for different products for the forthcoming quarter. While working on the
production table, a penalty of ? 100 per day for not wearing caps, gloves and apron
was announced.
Quoting lines from the above paragraph, identify and explain the different types of
plans discussed.
Answer:
The different types of plans discussed above are listed below:
1. Objectives: Objectives are the end results of the activities that-an organisation
seeks to achieve through its existence. All other activities within the

organisation are directed towards achieving these objectives.
“One of her objectives was to earn 10% profit on the amount invested in the
first year.”
2. Policy: A policy is a set of general guidelines that helps in managerial decision
making and action.
“It was decided that the raw materials like fruits, vegetables, spices, etc. will be
purchased on three months credit from farmers cultivating only organic crops.”
3. Procedure: A procedure contains a series of specific steps to be performed in a
chronological order to carry out the routine activities.
“She also decided to follow the steps required for marketing of the products
through her own outlets.”
“The exact manner in which the production activities are to be carried out.”
4. Rule: A rule is a specific statement relating to the general norms in terms of
Do’s and Dont’s that guide the behaviour of people. It commands strict
obedience and a penalty is likely to be imposed on its violation.
“While working on the production table, a penalty of ? 100 per day for not
wearing caps, gloves and aprons was announced.”
5. Budget: A budget refes to a financial plan that is expressed in numerical terms.
“Mohan also prepared a statement showing the number of workers different
products for the forthcoming quater.”
51 Josh Ltd. is a one of the largest two-wheeler manufacturer in India. It has a market
share of about 42% in the two-wheeler category. The company had witnessed
almost a 35% drop in the booking as the currency crunch was prompting people to
withhold new purchases due to demonetisation. Therefore, the production manager
of the company had decided to align production to factor in slower sales in the
market.
1. Identify and explain the function of management being discussed in the above
lines.
2. Which limitations of the function of management as identified in part (a) of
the question was the production manager trying to overcome due to
demonetisation?
Answer:
1. Planning is the function of management which is being discussed in the above
lines.
Planning is deciding in advance what to do, how to do, when to do and who has
to do it. Thus, it involves setting objectives and developing an appropriate
course of action to achieve these objectives.
2. The production manager is trying to overcome the following limitations of
planning:
o Rigidity
o Planning may not work in dynamic environment

52 The term demonetisation has become a household name since the government
pulled the old Rs. 500 and Rs. 1,000 notes out of circulation in November 2016. Prior
to the year 2016, the Indian government had demonetised bank notes on two prior
occasions—once in the year 1946 and then again in the year 1978. In both cases, the
purpose was to combat tax evasion by ‘black money’. Identify the types of one of
the functions of management being discussed in the above lines.
Answer:
Objective and Strategy
53 The arrangement to demonetise the ? 500 and ?1000 bank notes began six to ten
months prior to the public announcement and was kept highly confidential. The
cabinet was informed about the demonetisation on 8th November 2016 in a
meeting called by the Prime Minister of India, Narendra Modi. This was followed by
Modi’s public announcement about the demonetisation in a televised address
where he announced that currency notes with the denomination of ? 500 and ? 1000
would cease to be the legal tender from 9th of November 2016. The most
interesting thing regarding the demonetisation is that people were devising various
unique ways for transforming their black money in to white one by depositing
money in the accounts of their poor relatives and friends, converting black money in
to gold, paying a few months salaries in advance and so on.
Identify and explain the types of plans being discussed in the above lines with
regard to demonetisation.
Answer:
The various types of plans being discussed in the above lines with regard to
demonetisation are detailed below:
 Procedure: It is a series of chronological steps which are performed to do a
particular activity.
 Rule: A rule is a specific statement relating to the general norms in terms of
Do’s and Don’ts that guide the behaviour of people.
54 Rajender has been running a successful business of manufacturing traditional
wedding wear for women including sarees and lehengas. His friend Surinder who is
engaged in the business of providing web designing solutions to his clients, suggests
him to explore the option of selling his products online. Rajender agrees to his
suggestion and decides to venture into online business, keeping in view the various
e-commerce regulations in order to avoid imposition of any penalty. In order to
facilitate the sale of his products, Rajender decides to offer multiple payment
options such as cash on delivery, credit or debit card transactions, net banking to
the buyers etc.
1. Identify the two different types of plans mentioned in the above paragraph
that relate to the online portal that Rajinder intends to startby quoting lines
from the paragraph.

2. Distinguish between the two types of plans as identified in part (a).
Answer:
1. Rule and Method are the two different types of plans that relate to the online
portal that Rajender intends to start.
o Rule: “Rajender agrees to his suggestion and decides to venture into online
business keeping in view the various e-commerce regulations in order to avoid
imposition of any penalty.”
o Method: “However, he decides to offer multiple payment options such as cash
on delivery, credit or debit card transactions, net banking to the buyers etc.”
2. The difference between rule and method is as follows:
Basis Rule Method
Meaning Rules are specific statements Methods define the way of doing
that tell people what should or routine or respective job.
should not be done.
Violation Violation of rules may lead to Method does not involve any
imposition of penalties. penalties on violation.
Purpose Rules help to maintain discipline. Methods help in carrying out the
job efficiently.
Nature Rules are both specific and rigid. Methods are specific (well
defined) but flexible.
Example No smoking, No Parking etc. Method of payment of fee-
cheque, cash, online etc.
55 Wazir Ahmed joins ‘Ashiyana Ltd.’ a company dealing in real estate, as a human
resource manager. Through a series of interactions with his team during lunch
breaks, he comes to know that quite a few managers at middle and senior levels
have recently left the organisation as their promotions were overdue. Therefore, in
order to reinstate the confidence of the staff, he lays out a clear cut plan consisting
of a set of general guidelines for both time bound and performance related
appraisals of the mangers at all levels. Moreover, he develops standardized
processes containing a series of steps specified in a chronological order for its
implementation.
1. Identify the two different types of plans that Wazir Ahmed proposes to
implement in order to reinstate the confidence of the staff by quoting lines
from the paragraph.
2. Distinguish between the two types of plans as identified in part (a).
Answer:
1. Policy and Procedure are the two different types of plans that Wazir Ahmed
proposes to implement in order to reinstate the confidence of the staff.
Policy: “… he lays out a clear cut plan consisting of a set of general guidelines for
both time bound and performance related appraisals of the mangers at all
levels.”
Procedure: “Moreover, he develops standardized processes containing a series
of steps specified in a chronological order for its implementation.”
2. The difference between Policy and Procedure is outlined below:
Basis Policy Procedure
Meaning Policies are general statements It is a series of chronological
that guide managerial decision steps which are performed to
making. do a particular activity.
Level of It is determined by top level It is determined by lower and
management management. middle level management.
Expression It is a general statement. It is a specific statement.
Manager’s It provides scope for managerial There is no scope for
Discretion discretion. managerial discretion.
Purpose Policies are framed to achieve A procedure is framed to
the objectives of an implement a policy.
organisation. They all guide in
implementing the strategy.
56 After completing a diploma in Bakery and Patisserie, Payai sets up a small outlet at
Goa Airport to provide a healthy food option to the travellers. To begin with, she
has decided to sell five types of patties, three types of pizzas and low sugar muffins
in four flavours. Thus, by deciding in advance what to do and how to do, she is able
to reduce the risk of uncertainty and avoid overlapping and wasteful activities. But
sometimes her planning does not work due to some unavoidable circumstances like
cancellation of flights due to bad weather conditions, government alert etc. which
adversely affects her clientele.
1. Identify and explain the points highlighting the importance of planning
mentioned in the above paragraph.
2. Describe briefly the limitation of planning which adversely affects Payal’s
business
Answer:
1. The points highlighting the importance of planning mentioned in the above
paragraph are described below:
o Reduces the risk of uncertainty: Planning relates to deciding in advance about
the tasks to be performed in future. This enables a manager to anticipate
changes and devise the ways to deal with changes and uncertain events
effectively.
o Avoiding overlapping and wasteful activities: Planning ensures clarity in
thought and action and serves as the basis of coordinating the activities and
efforts of different individuals and departments. Therefore, by curtailing useless
and redundant activities, it helps in the smooth working of the organisation’s
work without interruptions. Moreover, it makes detection of inefficiencies
easier so that timely corrective measures may be taken to avoid them in future.
2. The limitation of planning which adversely affects Payal’s business is:
o Planning may not work in a dynamic environment: The business environment

is dynamic in nature. Every organisation has to constantly adapt itself to
changes in its environment in order to survive and grow. However, it difficult to
anticipate all the likely future changes in the environment with utmost
accuracy. Hence, even with planning, everything cannot be foreseen.

CHAPTER -5 ORGANISING
1 Name the function of management which co-ordinate the Physical, Financial, and
Human resources and establishes productive relations among them for
achievement of specific goals.
Ans.
Organising
2 The directors of Narmada Ltd. An organization manufacturing computer have
asked their marketing manager to achieve a target rate of 100 computers per
day. The marketing manager has delegates the task to his deputy sales manager
working under him. The deputy sales managers could not achieve he target. Is
the marketing manager responsible for the failure of his deputy sales manager?
Explain in brief , the relevant principle in support of your answer.?
Ans.
Yes, marketing manager is responsible for non- achievement of he target sales.
3 The Director of Kamal Ltd, an organization manufacturing computer want to
double the sales and given this responsibility to their sales manager. The Sales
Manager has no authority either to increase , sales expense or appoint new
salesman. Hence, he could not achieve this target. Is the sales manager
responsible for not achieving the target? Explain in brief , the relevant principal in
support of your answer.?
Ans.
No, sales manager is not responsible for not achieving the target. The principle
involved is purity of authority and responsibility.
4 “If we delegate the authority, we multiply it by two if we decentralize it, we
multiply it by many “ how?
Ans.
Scope of delegation of authority is limited as it is confined to a manager and his
immediate subordinate in work unit. Scope of decentralization- It involves systematic
delegation of authority at all levels and in all functions of the organization. It is an
extension of delegation to the lowest levels in the organization
5 A Fashion design house has the following main job:-
(1) Manufacturing (2) Finance (3)Marketing (4) Personal (5) Research and
Development Which organizational structure will you prefer for this type of a
company and why?
Ans.
Functional organizational structure will be suitable
6 Rina runs a shoe manufacturing factory. She wants to expand her business. For
expansion she contemplated to enter into the manufacturing of leather bags and
western formal wear apart from the running business of shoes. By doing this her
company will be able to provide many products to working women under one
roof. Which organization structure will you suggest her and why?
Ans.
In this situation, Divisional Structure will be suitable as it provides equal
importance to all products. Also describe the advantages of divisional organization
structure.
7 Name the organization which has the benefit of Easy to fix responsibility?
Ans. Formal organization.
Name the type of organization which does not have predetermined objectives?
Ans. Informal organization
8 For which kind of enterprises functional structure is more suitable?
Ans.
When the size of the organization is large, has a diversified activities and
operations require a high degree of specialization.
9 What are the advantages and disadvantages of divisional structure?
Ans. Advantages:
1).All activities associated with one product. It can be easily integrated.
2).Decision making is faster.
3).Performance can be easily assessed remedial action can be taken
4). It facilitates expansion and growth as new divisions can be added.
Disadvantages:
1).This gives rise to duplication of effort among its divisions.
2).Manages in each department focus on their own product without thinking the rest
of the organization.
3).There may not be full utilization of different equipments
4).Conflict may arise among different division.
10 Distinguish between formal and informal organizations on the basis of
a) Formation b. Purpose c. structure d. Behavior of members e. stability
and f. adherence to rules.
Ans..
Basis Functional Structure Divisional Structure.
Formation Deliberately Planned Emerges Spontaneously
among people
Purpose To achieve To satisfy social and
organizational goals cultural needs
Structure Well defined structure Does not have a clear-cut
structure
Behavior of members Standards of behavior Mutual consent among
members
11 Distinguish between ‘delegation’ and ‘decentralisation’ of authority .
Ans.:
Basis Delegation Decentralisation
Purpose It means getting things done To prepare the organization for
through subordinates handling major expansion of its
activities
Parties It is confined with manager It indicates relationship between
involved and his immediate top management and various
subordinate other departments
Withdrawal The delegated authority can Withdrawal of authority is difficult
of be withdrawn by the
authority delegator
12 A company, which manufactures a popular brand of toys, has been enjoying good
market reputation. It has a functional organisational structure with separate
departments for Production, Marketing, Finance, Human Resources and Research
and Development. Lately to use its brand name and also to cash on to new business
opportunities it is thinking to diversify into manufacture of new range of electronic
toys for which a new market is emerging.
Questions.
Prepare a report regarding organisation structure giving concrete reasons
with regard to benefits the company will derive from the steps it should take.
ANS:
Divisional structure. The report is as under:
By : Ashok Kumar
Delhi
Wednesday, 22 January, 14
The organisation enjoys good market reputation. The company is encashingit’s
brandname and reputation. It’s venturing into manufacture of a new range of
electronictoys. This organisation has got multiple divisions, it should appoint
divisional headsfor each division. This will ensure product specialisation. Adapting
such structure willensure flexibility and easy fixation of responsibility. The change of
structure will alsohelp the business enterprise to make these divisional heads
accountable.So, in a nutshell this new structure will ensure growth and expansion
for theorganisation.
13 A company manufacturing sewing machines set up in 1945 by the Britishpromoters
follows formal organisation culture in totality. It is facing lot ofproblems in delays in
decisionmaking. As the result it is not able to adaptto changing business
environment. The work force is also not motivatedsince they cannot vent their
grievances except through formal channels,which involve red tape. Employee
turnover is high. Its market share is alsodeclining due to changed circumstances and
business environment.
(i) You are to advise the company with regard to change it should bring aboutin its
organisation structure to overcome the problems faced by it.
(ii) Give reasons in terms of benefits it will derive from the changes suggestedby
you.
(iii) In which sectors can the company diversify keeping in mind the decliningmarket
for the product the company is manufacturing?
ANS:
(i) To overcome the problems faced, the company should encourage informal
organisation.
(ii) The benefits it will derive are:
(a) Faster communication and quick feedback: It follows an independent
channel of communication as there is no Prescribed lines of communication to
befollowed. Thus, the informal organisation leads to faster spread of informationas
well as quick feedback.
(b) Fulfill social needs: It helps to fulfill the social needs of the members andallows
them to find like-minded people. This enhances their job satisfaction sinceit gives
them a sense of belongingness in the organisation.
(c) Fulfillment of organisational objectives: It contributes towards fulfilment of
organisational objectives by compensating for inadequacies in the
formalorganisation. For example, employees reactions towards plans and policies
canbe tested through the informal network.
(iii) The company can diversify into interlocking machines, automatic buttoning
units,embroidery machines.
14 A company X Limited manufacturing cosmetics, which has enjoyed a
preeminentposition in business, has grown in size. Its business was very goodtill
1991. But after that, new liberalised environment has seen entry ofmany MNC’s in
the sector. With the result the market share of X Limitedhas declined. The company
had followed a very centralised business modelwith Directors and divisional heads
making even minor decisions. Before1991, this business model had served the
company very well as consumershad no choice. But now the company is under
pressure to reform.
Questions.
(i) What organisation structure changes should the company bring about inorder to
retain its market share?
(ii) How will the changes suggested by you help the firm? Keep in mind thatthe
sector in which the company is FMCG.
ANS:
(i) The company should shift from centralised to decentralised structure. It would
ensure quick decision-making, motivate the subordinates and ensure effective
communication.
(ii) Even in Fast moving consumer goods (FMCG) industry, there is need for
decentralisation. By using decentralisation, a company gets following benefits.
(a) Develops initiative among subordinates
 Decentralisation helps to promote self-reliance and confidence amongst the
subordinates. This is because when lower managerial levels are given freedom
to take their own decisions they learn to depend on their own judgment.
 It also keeps them in a state wherein they are constantly challenged and have
to develop solutions for the various problems they encounter. A
decentralization policy helps to identify those executives who have the
necessary potential to become dynamic leaders.
(b) 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.
 Decentralisation gives them a chance to prove their abilities and creates a
reservoir of qualified manpower who can be considered to fill up more
challenging positions through promotions.
 It also helps to identify those who may not be successful in assuming greater
responsibility. Thus, it is a means of management education as well as an
opportunity for trained manpower to use its talent in real-life situations.
(c) Quick decision-making:
 The management hierarchy can be looked upon as a chain of communication.
In centralised organisation, every decision is taken by the top management, the
flow of information is slow as it has to traverse many levels. Response also
takes time. This reduces the speed of decision-making and makes it difficult for
an enterprise to adapt to dynamic operating conditions.
 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. There are also less
chances of information getting distorted because it doesn’t have to go through
long channels.
(d) Relief to top management:
 Decentralisation is required to reduce the burden of top executives when it
increases due to increase in the size and complexity of the organisation.
 In a decentralised organization, top executives have enough time to plan
ahead, develop new strategies and concentrate on coordination and control.
Since they are not burdened by the routine problems and complexities of
administrative details.
15 A manager has kept all right of decision making with himself. Each and every
employee hasto come to him for orders again and again. Which values are being
violated here?
Ans.
i) Wastage of time and resources.
ii) Frustration in employees.
16 In an organization formal organization is followed strictly where the employees
have to work as per the directions only. The employees are performing under
pressure. In your view, what changes are required in this company?
Ans
i) Fearful environment will decrease production.
ii) Increased feeling of insecurity.
iii) Pressure will create stress among employees.
iv)Delay in work
17 Ishita works as a corporate event coordinator in an event management company.
She has been made an overall official in charge for organizing a painting exhibition
for one of the clients of the company. For ensuring that the exhibition takes place
successfully, she identifies the various activities involved and divides the whole
work into various task groups like marketing committee, decoration committee and
reception committee. In order to facilitate coordination within and among
committees, she appoints a supervisor of each group. Each member in the group is
asked to report to their respective supervisor of each group. Each member in the
group is asked to report to their respective supervisors and all
the supervisors are expected to work as per Ishita’s orders.
1. Identify the function of management being performed by Ishita.
2. Describe briefly the various steps involved in the performance of the function of
management as identified in part (a) of the question.
Ans.
1. The Organizing function of management is being performed by Ishita.
2. The steps involved in the process of organizing are as follows:
1. Identification and Division of Work:
2. Departmentalization:
3. Assignment of Duties:
4. Establishing Reporting Relationship:
18 As the head boy and head girl of ‘Prakashay Public School’, Deepak Chugh and
Deepika Chawla have been given the responsibility of hosting the teacher’s Day
Programme in the school. In order to conduct the programme in a systematic
way, Deepak and Deepika first called a meeting of the student council. In the
meeting the decided about the content of the programme after taking into
consideration the different available alternatives and choosing the best
alternative among them. Then the various tasks required to be performed
were identified and divided in accordance with predetermined schedule made by
them. After that they grouped the similar activities into main groups as skit
group, choir group, instrumental music group and contemporary dance group.
Then each group was placed under the charge of a council member in accordance
with his/her skills and competencies. These council members were in turn
informed that they have to take orders and will be accountable only to Deepak
and Deepika so as to facilitate coordination amongst various groups.
1. Identify of the above case:
2. Describe briefly any two points highlighting the importance of each of the
functions of management as identified in part (a) of the question.
3. State any two values that ‘Prakashay Public School’ wants to communicate to
society.
Ans.
1. The planning and organizing functions of management are being discussed.
Planning is deciding in advance what to do, how to do, when to do and who has to
do it. It is one of the basic managerial functions. Thus, it involves setting objectives
and developing an appropriate course of action to achieve these objectives.
Organizing is the process of defining and grouping the activities iof the enterprise

and establishing authority relationships among them.
2. The importance of the planning function of management is described below:
1. Planning provides directions:
2. Planning reduces the risk of uncertainty:
The importance of the organizing function of management is described below:
1. Benefits of specialization:
2. Clarity in working relationships:
3.. The two values that ‘Prakashay Public School’ wants to communicate to society
are:
1. Trust
2. Participation
19 Rishu, Ashu and Ravi have decided to start a business of manufacturing toys.
They identified the following main activities which they have to perform;
1. Purchase of raw materials,
2. Purchase of machinery,
3. Production of toys,
4. Arrangement of finance,
5. Sale of toys,
6. Identifying the areas where they can sell their toys
7. Selection of employees
In order to facilitate the work they thought that four managers should be
appointed to look after
1. Production,
2. Finance,
3. Marketing’
4. Personnel.
1. Identify the function of management involved in the above-mentioned para.
2. Quote the lines from the above para which help you in identifying this function.
3. State the steps followed in the process of this function of management. (6
marks)
Ans.
1. Organizing
2. ‘they identified the following main activities which they have to perform.’
‘In order to facilitate the work they thought that four managers should be appointed
to look after
1. Production,
2. Finance,
3. Marketing,
4. Personnel.’
3. Steps in Organizing Process:
1. Identify and dividing the work into manageable activities.
2. Departmentalization / Departmentation where activities of a similar nature are
grouped together.

3. Assignment of duties to job positions.
4. Establishing reporting relationships so that each individual knows from whom he
has to take orders and to whom he is accountable.
20 A Steel Manufacturing Company has the following main jobs:
1. Manufacturing, (ii) Finance, (iii) Marketing, (iv) Personal and, (v) Research and
development.
1. Which type of organizational structure will you choose for this type of a
company and why?
2. State any six advantages that this structure offers to an organization. (4
marks)
Ans.
1. Functional structure; because the company has diversified activities and operations
require a high degree of specialization.
2. Advantages of functional structure:
1. Functional structure leads to occupational specialization.
2. It promotes control and coordination within the department.
3. It helps in increasing managerial and operational efficiency and this results in an
increase in profits.
4. It leads to minimum duplication of effort.
5. It makes training of employees easier.
6. It ensures that different functions get due attention.
21 Identify and state the type of organization structure that should be followed by
the company in each case:
1. Vrinda Ltd. grows, so it needs to add more employees, create new
departments and introduce new levels of management.
2. Shreya Ltd. is a large organization having diversified activities and operations
requires a high degree of specialization: (3 marks)
Ans.
1. Divisional structure
It is an organization structure comprising of separate business units or divisions,
created on a certain basis, e.g. product lines.
2. Functional structure
It is an organization structure formed by grouping of jobs of similar nature under
Functions and organizing these functions as separate departments like production,
finance, marketing, etc
22 Kiran Industries is a company manufacturing office furniture. The company chose to
diversify its operations to improve its growth potential and increase market share.
As the project was important many alternatives were generated for the purpose
and were thoroughly discussed amongst the members of the organization. After
evaluating the various alternatives Sukhvinder,, the Managing Director of the
company decided that they should add ‘Home Interiors and Furnishings’ as a new
line of business activity.
1. Name the framework, which the diversified organization should adopt, to

enable it to cope with the emerging complexity? Give one reason in support of
your answer.
2. State any two limitations of this framework. (4 marks)
Ans.
1. Divisional Structure
Reason in support of the answer (any one)
1. Product Specialization helps in the development of varied skills in a divisional head
and this prepares him for higher positions.
2. Divisional heads are accountable for profits, as revenues and costs related to
different departments can be easily identified and assigned to them.
3. It promotes flexibility and initiative because each division functions as an
autonomous unit which leads to faster decision making.
4. It facilitates expansion and growth as new divisions can be added without
interrupting existing operations by merely adding another divisional head and staff
for the new product line.
2. Limitations of the Divisional Structure: (Any two)
1. Conflict may arise among different divisions with reference to allocation of funds.
2. It may lead to increase in costs since there may be a duplication of activities across
products.
3. Divisional interests may supersede organizational interests
23 ‘Himalaya Ltd.’, is engaged in manufacturing of washing machines. The target of the
organization is to manufacture 500 washing machines in a day. There is an
occupational specialization in the organization which promotes efficiency of
employees. There is no duplication of efforts in such type or organization structure.
Identify the type of organization structure described above. (1 mark)
Ans. Functional structure.
24 A company is manufacturing washing machines. There is a well-defined system of
jobs with a clear and definite authority, responsibility and accountability in the
company. But people are not allowed to interact beyond their officially defined
roles. As a result,, the company is not able to adapt to the changing business
environment. The workforce is also not motivated due to lack of social interaction.
The company is facing problems of procedural delays and inadequate recognition of
creative talents.
1. Suggest how the organization can overcome the problems faced by it.
2. Give any two benefits it will derive from your suggestions.
Ans.
1. The organization can overcome the problem faced by it by adopting informal
organization. Informal organization emerges from within the formal organization
when people interact beyond their officially defined roles.
2. The two benefits of informal organization are as follows:
1. It helps to fulfill the social needs of the members by giving them a sense of
belongingness in the organization and enhances their job satisfaction.
2. It contributes towards the fulfillment of organizational objectives by compensating

for inadequacies in the formal organization
25 After completing a course in travel and tourism, Karan started his own travel
agency. In order to ensure smooth functioning of his business, he decided to create
fourteen job positions divided into four departments on the basis of functions
namely, front office department including online queries, reservations department
for airways, railways and roadways, accommodation booking department, and
securing payments department. In order to avoid any interdepartmental conflicts
he decides to specify clearly the lines of authority and areas of responsibility for
each job position.
1. Which function of management is being described in the above lines?
2. Identify the framework created by Karan within which all managerial and
Operating tasks are to be performed in his organization.
3. Name the type of the framework as identified in part (a) of the question.
Ans.
1. The Organizational function of management is being described in the above lines.
2. Organizational structure is the framework created by Karan within which all
managerial and operating task are to be performed in his organization.
3. Karan has created a functional structure as job positions are divided into four
departments on the basis of functions namely, front office department including
online queries, reservation department for airways, railways and roadways,
accommodation booking department, and securing payments department
26 The Employees of Manik Ltd., a software company, have formed a dramatic group
for their recreation. Name the type of organization so formed and state its four
features. (4)
Ans. The type or organization formed by employees of Manik Ltd. is informal
organization
Features of Informal Organization:
1. An informal organization originates from within the formal organization as a result
of personal interaction among employees.
2. The standards of behavior evolve form group norms rather than officially laid down
rules.
3. Independent channels of communication without specified direction of flow of
information are developed by group members.
4. It emerges spontaneously and is not deliberately created by the management.
27 Distinguish between functional structure and divisional structure. (4M)
Basis Functional Structure Divisional Structure.
Formation It is based on functions It is based on product lines
Specialisation Functional Specialisation Product Specialisation
Responsibility Difficult to fix on a Easy to fix responsibility
departments
Cost Economical Costly

Co ordination Difficult for multi product Easy, because all functions related
company to a particular product are
integrated in one department.
Managerial Difficult, as each functional Easier, autonomy as well as the
Development manager has to report to the chance to perform multiple
top management functions helps in managerial
development.
28 “A manager is of the view that he is not responsible for the quality of work that he
has delegated to his subordinate”. Do you agree with his view points? Justify your
answer by giving arguments. (4)
Ans: No I do not agree with managers view point.
The reasons are as follows:
i) Principle of delegation by results expected.
ii) Principle of parity of authority and responsibility
iii) Principle of absolute responsibility.
iv) Authority level principle
29 Distinguish between ‘delegation’ and ‘decentralization’ of authority on the basis of
i) purpose ii) parties involved and iii) withdrawal of authority.(3)
Ans:
Basis Delegation Decentralization
Purpose It means getting things To prepare the organization for
done handling major expansion of its
through subordinates activities
Parties It is confined with It indicates relationship
involved manager and between top
his immediate subordinate management and various other
departments
Withdrawal of The delegated authority Withdrawal of authority is
authority can be difficult
withdrawn by the
delegator
30 Aman Ltd. Is manufacturing toys and has production, sales, Purchase and Finance
Departments. Which type of organization structure would you suggest to them?
State
any three advantages of this organization structure.(3)
Ans: I would suggest functional structure for Aman Limited.
Advantages of this structure:
i. Supervision is facilitated.
ii. Coordination with in the department is easier.
31 Hindustan Ltd. , is manufacturing computers, soaps and textiles. Which type of
organizational structure would suit the requirements of such organization? State
any
three advantages of this organization structure.( 4)
Ans: Divisional structure would shoot the requirements of Hindustan limited.
Advantages:
i. All activates associated with one product can be easily integrated.
ii. Decision making is faster and effective.
iii. Performance of individual product can be easily assessed.
32 It is a network of personal and social relations not established or required by the
formal organization but arising spontaneously as people associate with one
another.
Name this organization and give its three advantages. (4)
Ans: Informal organization:
Advantages:
1. It brings feeling of belongingness.
2. Informal organization satisfies social and cultural needs.
3. It provides useful channel of communication
33 “Authority can be delegated but accountability cannot.” Explain the statement.(3)
Ans: According to the principle of absolute responsibility, authority can be delegated
but
responsibility cannot be delegated by a manager. The manager remains responsible
to his
own superior for the task which he may assign to his subordinates. Every superior is
responsible for the acts of this subordinates to whom he delegates authority for any
work.
34 The Marketing Manager of an organization has been asked to achieve a target sales
of 100 generators per day. He delegates the task to 10 sales managers working
under him. Two of them could not achieve their respective targets. Is the marking
manager responsible? Briefly explain the relevant principle in support of your
answer.( 4)
Ans: Yes, Marketing manager is responsible for the non-achievement of the target
sales to his superior.
The principle related to this statement is absolute responsibility. It states that
authority can
be delegated but responsibility cannot be delegated by manager. The manager
remains
responsible are accountable to this own superior for the task which he may have
assigned to his subordinate.
35 If we delegate the authority we multiply it by two, If we decentralize it, we
multiply it by money. (3)
Ans: Scope of delegation of authority is limited. It is clear that if we delegate the
authority
we multiply it by 2 that is delegator and his subordinate to whom authority is
delegated.
Scope of decentralization of authority is wider than delegation. It involves many
people from to level to bottom lower level of authority.
36 Enumerate any two basis of departmentation in an organisation.
Ans. Two basis of departmentation in an organisation are:
(i) Territories (north, south, east, west, etc).
(ii) Products (appliances, clothes, cosmetics, etc).
37 Explain by giving any three reasons why organising is considered as an
important function of management. (Delhi 2010)
Ans. The following points highlight the crucial role that organising plays in any
business enterprise:
(i) Clarity in working relationship The establishment of working relationships clarifies
the lines of communication and specifies, ‘who will report to whom’. This removes
ambiguity in transfer of information and instructions.
(ii) Effective administration Organising provides a clear description of jobs and
related duties. This helps to avoid confusion and duplication. Clarity in working
relationships enables proper execution of work. Management of an enterprise
thereby becomes easy and this brings effectiveness in administration.
(iii) Expansion and growth Organising helps in the growth and diversification of an
enterprise by enabling it to deviate from existing norms and taking up new challenges
and also by facilitating its efficient management.
38 Organising involves a series of steps that need to be taken in order to achieve
the desired goals. Explain these steps.
or
State the steps in the organising process.
or
Describe briefly the steps in the process of organising.
or
‘Organising is the process of defining and grouping the activities of the enterprise
and establishing the authority relationship among them.’ In the light of this
statement, explain the steps in the process of organising.
Ans. Steps in the Process of Organising

Various steps involved in the organising process may be described as follows:
(i) Identification and division of work The organising function begins with the division
of total work into smaller units. Each unit of total work is called a Job. The division of
work into smaller jobs leads to specialisation because jobs are assigned to different
individuals according to their qualifications and capabilities. The division of work and
assignment of jobs leads to systematic working.
(ii) Grouping the jobs and departmentalisation After division of work, related and
similar jobs are grouped together and put under one department.
This can be done in the following two ways :
(a) Functional departmentation Under this method, jobs related to common
functions are grouped under one department.
(b) Divisional departmentation Under this method, jobs related to one product are
grouped under one department.

(iii) Assignment of duties After dividing the organisation into specialised
departments, each individual working in different departments is assigned a duty,
matching to his skill and qualifications. We can say, the work is assigned to those who
are best fitted to perform it well.
(iv) Establishing reporting relationship Merely allocating the work is not enough.
Each individual should also know from whom he has to take orders and to whom he is
accountable. The establishment of such clear relationships helps to create a
hierarchical structure and helps in coordination amongst various departments.
39 State any four points of importance of organising as a function of management.
or
‘Organisation is the harmonious adjustment of specialised parts for the
accomplishment of some common purpose or purposes.’ In the light of this
statement, explain any four points of importance of organising.
Ans. Organising is considered as an important function of management because:
(i) Benefits of specialisation Organising leads to a systematic allocation of jobs
amongst the work force. This reduces the work load as well as enhances productivity
because of the specific workers performing a specific job on regular basis. By doing a
job on regular basis, a worker gets experience in that area and leads to specialisation.
(ii) Clarity in working relationship The establishment of working relationships clarifies
lines of communication and specifies ‘who reports to whom’. This removes ambiguity
in transfer of information and instructions.
(iii) Optimum utilisation of resources Organising leads to the proper usage of all
material, financial and human resources. The proper assignment of jobs avoids
overlapping of work and also makes possible the best use of resources. Avoidance of
duplication of work helps in preventing confusion and minimising the wastage of
resources and efforts
(iv) Expansion and growth Organising helps in the growth and diversification of an
enterprise by enablinglt to deviate from existing norms and taking up new challenges.
In other words, sound organisation helps in taking the various activities under control
and increases the capacity of the enterprise to undertake more activities.
40 Ravi runs a locks manufacturing factory. He manufactures locks used in houses. He
wants to expand his business. For this, he wants to enter into the manufacturing of
locks for cars and motorcycles. Which type of organizational structure will he
choose for his factory and why? (1 mark)
Ans. Functional structure; because the company produces a single product (locks
used in houses) or a small number of related products (locks for cars and
motorcycles).
41 Neeta Ltd. is engaged in the production of marble articles. The members of the
organization have friendly relationships among them. What type of organization is
Neeta Ltd.? (1 mark)
Ans. Informal organization
42 Sherya Ltd. has been awarded recently with the ‘Best Employer of the Year Award’.
The company has believed in the ideas and suggestions of its employees. There is
systematic dispersal of decision making at all levels. There is no delay in delivery of
orders to customers due to prompt decisions taken by employees.
1. Identify and state the concept of management followed by the company.
2. State any two values responsible for the success of the organization. (4 marks)
Ans.
1. Decentralization
It refers to systematic delegation of authority through all the levels of management
and in all the departments except that which can be exercised only at central points.
2. Values:
● Confidence / faith in the abilities of the subordinates
● Initiative by subordinates
● Respect towards others’ opinion
● Acceptance (any two)
43 An electronic company manufacturing TV and Refrigerators wants to bring two new
Washing machines and ACs in the market. For each product separate division is to
be set up. In charge of washing machine division and ACs division will be females
and disabled person respectively.
1. What type of organizational structure is suitable for this company? Give reason.
2. State any one value which has been considered by the company. (3 marks)
Ans.
1. Divisional structure; because it is a large company having multiple products with
distinctive characteristics.
2. Values:
● Women Empowerment
● Promotion of equality (any one
44 Explain
(i) Benefits of specialisation and
(ii) Development of personnel as importance of organising.
Ans. (i) Benefits of specialisation Organising leads to a systematic allocation of jobs
(ii) Development of personnel Delegation of authority allows the managers to reduce
their work load and to pay attention to more important and strategic issues and to
develop new methods and ways of performing job where their potential can be
exploited in more useful manner. Delegation develops in subordinates the ability to
deal effectively with challenges and realise their full potential for more creative work.
45 Explain
 Adaptation to change and .
 Effective administration as importance of organising.
Ans. (i) Adaptation to change The process of organising allows a business enterprise
to accommodate changes in the business environment. It allows the organisation
structure to be suitably modified and the inter-relationships amongst various

managerial levels to pave the way for a smooth transition.
(ii) Effective administration Organising provides a clear description of jobs and
related duties. This helps to avoid confusion and duplication. Clarity in working
relationships enables proper execution of work. Management of an enterprise
thereby becomes easy and this brings effectiveness in administration.
46 With the help of any four points, explain the crucial role of ‘organising’ function
in an enterprise.
or
Organising plays an important role in any business enterprise. Explain by giving any
four reasons.
Ans. Organising is considered as an important function of management because:
(i) Benefits of specialisation Organising leads to a systematic allocation of jobs
(ii) Clarity in working relationship The establishment of working relationships clarifies
lines of communication and specifies ‘who reports to whom’. This removes ambiguity
in transfer of information and instructions.
(iii) Optimum utilisation of resources Organising leads to the proper usage of all
material, financial and human resources. The proper assignment of jobs avoids
overlapping of work and also makes possible the best use of resources. Avoidance of
duplication of work helps in preventing confusion and minimising the wastage of
resources and efforts.
(iv) Expansion and growth Organising helps in the growth and diversification of an
enterprise by enablinglt to deviate from existing norms and taking up new challenges.
In other words, sound organisation helps in taking the various activities under control
and increases the capacity of the enterprise to undertake more activities.
47 To make the annual function of the school successful the principal of the school
divided all the activities into task groups each dealing with a specific area like
rehearsals, decoration, stage management, refreshments etc. Each group was
placed under the overall supervision of a senior teacher. Identify the function of
management performed by the Principal in doing so.
Ans: Organizing. Organizing is the procedure of recognizing and assemblage the work
to be performed.
48 ‘Panda Trucks Ltd.’ decided to set-up its new truck manufacturing factory in the
backwards area of Bihar were very less job opportunities were available. People of
that area welcomed this effort of ‘Panda Trucks Ltd’. To attract people to work in its
factory it also decided to provide many other facilities like school, hospital, market
etc. in the factory premises. ‘Panda Trucks Ltd.’ started earning huge profits.
Another competing company asked its production manager ‘Sanjay’ to investigate
the reasons of earning huge profits by ‘Panda Trucks Ltd.’
Sanjay found that in both the companies there was systematic coordination among
the various activities to achieve organizational goals. Every employee knew who

was responsible and accountable to whom, The only difference was that in his
organization communication took place only through the scalar chain whereas
‘Panda Trucks Ltd.’ was allowing flow of communication in all the directions as per
the requirement which lead to faster spread of information as well as quick
feedback.
(a) Identify the type of organization, which permits ‘Panda Trucks Ltd.’ the flow of
communication in all the directions.
Ans: In Panda Trucks Ltd., informal organization permits the flow of communication
in all the directions.
(b) State another advantage of the type of organization identified in (a) above.
Ans: The another advantage of informal organization is Promotion of social and
cultural values. Members of informal organization share common thoughts, social
and cultural beliefs. Their interests are promoted which adds to the strength of the
organization and a commitment to accomplish its formal goals.
(c) State any two values which ‘Panda Trucks Ltd.’ wanted to communicate to the
society.
Ans: The two values that ‘Panda Trucks Ltd.’ wanted to connect to the society are
given underneath.
I. Fulfilling social responsibility.
II. Working for benefits of employees
49 A company has been registered under the Companies Act with an authorized share
capital of Rs. 20,000 crores. Its registered office is situated in Delhi and
manufacturing unit in a backward district of Rajasthan. Its marketing department is
situated in Bhopal. The company is manufacturing Fast Moving Consumer Goods
(FMCG).
(i) Suggest with the help of a diagram a suitable organization structure for the
company.
Ans. Divisional Structure
ii) State any three advantages of this organization structure.

Ans: Advantages of Divisional structure:
(i) Each division can work as an independent unit.
(ii) Divisional management improves the use of resources.
(iii) Promotes flexibility as each division is independent.
(iv) Removes need for direct supervision of division by corporate managers.

50 Distinguish between centralization and decentralization.
Ans : Following are the differential factors between Centralization and
Decentralization.
Basis of Centralization Decentralization
Difference
Authority Here, all the higher positions in In decentralization, the
the company as well as in the management disbands the
management hold the decision-making authority
decision-making authority. across the organization and
brings it closer to the source of
action and information.
Environmental Centralization is more If the environment is complex
condition appropriate in stable and uncertain the organization
environmental conditions. requires a greater amount of
decentralization.
Preference If the lower level managers are If the lower level managers are
not very competent or competent enough to make the
experienced enough to take decisions, organizations will
decisions, organizations tend benefit from decentralization.
to prefer centralization.
Manage risk If the organization faces a risk For centralization to be
or threat, it relies more on effectively practiced, the
centralized policies. organizational culture must be
more open and trusting.
requirement To run a big organization If the organization is a multi-
effectively, centralization is located one with branches at
required. different geographical locations
a greater amount of
decentralization is required.
Control It depends largely on the If, on the contrary, managers
mindset of the people. If the are more flexible in their
managers believe in having a attitude, a decentralization
tighter control over the policy will prevail.
happenings in an organization,
the practice of centralization
will prevail.
51 How is functional structure different from a divisional structure?
Ans: The following points highlight the difference between a functional structure and
a divisional structure.

Basis of Functional structure Divisional structure
Difference
Meaning It is about Grouping or combining Organizations with diversified
of jobs of similar nature under activities organize their
various functions as well as structure with separate
organising these functions as business units or divisions,
department creates functional which is known as divisional
structure. structure.
Formation It is formed by keeping in mind all It is on the other hand; formed
the functions that are performed on the basis of product lines,
in the organization. supported by functions.
Specialization It leads to functional It leads to product

specialization. specialization.
Responsibility It is considered as difficult to fix It is considered as easy to fix
responsibility on a department. responsibility for performance.
Managerial Less scope of managerial High degree of managerial

development development as specialised development with ease, due to
functions are performed. autonomy and performance of
multiple functions.
Cost involved It is considered as economical It is costly as there is

because there is no duplication. duplication of work and
resources.
Coordination Difficult for a multiproduct It is considered as easy,
company. because all functions related to
a particular product are
integrated in one.

CHAPTER-6 STAFFING
1 Which management function concentrates on employing and retaining right person
at the right place?
Ans- Staffing.
2 “The scope of staffing is limited to employing people”. Do you agree with this?
Ans. No. I do not agree with this statement. Staffing function has a wide scope as it
includes various activities like recruitment, selection, placement, training, transfer,
development, etc.
3 Why is it said that recruitment is a positive step in the process of staffing?
Ans. Recruitment is a positive process because it aims at attracting number of
candidates to apply for the given job and there is no rejection in this process.
4 “New talent and new ideas in the organisation’. Which source of recruitment has
the give motto ?
Ans.External source
5 State whether the following statements are true or false.
(i) “Personal Manager is both a line manager as well as a staff manager.”:
True.
(ii) Staffing and employing refer to the same activity.
True.
(iii) Personnel problems exist only in a large organisation.
False.
(iv) Recruitment and selection are one and the same thing.
False.
(v) Training and development are synonymous.
False.
6 What is meant by staffing? How staffing is a line as well as staff function?
Answer:
In simple words, staffing is the processing of obtaining and maintaining capable and
competent people to fill all positions from top management to the operative level.
This includes securing, recruiting, selecting, training, appraising and maintaining the
individuals in organizations. Let us pull the views of management scholars on the
definition of staffing.
 Staffing is the function by which managers build an organization through the
recruitment, selection, development of individuals as capable employees.
 Staffing is the executive function which involves the recruitment, selection,
compensating, training, promotion and retirement of subordinate managers.
 Staffing is concerned with the placement, growth development of all those
members of the organization whose function is to get things done through the
efforts of another individual.
 Staffing is the whole personnel function of bringing in and training the staff and
maintaining favourable conditions of work.
Almost all the scholars unanimously agree that –
1. Staffing is a function involving the recruitment, selection and training and
development of people.
2. Staffing is broad enough to cover both rank and file employees and managers.
Staffing provides the managers with tremendous opportunity to surround themselves
with subordinates of their own choosing. More often than not, staffing is equated to
hiring the employees in work organization. Actually, staffing is more than hiring, for
managers cannot build excellent, effective and efficient organization solely by hiring.
The concept -of staffing is so broad to include several activities frequently assigned to
the personnel departments such as transfers, discharge, retirements, training,
development and orientation.
Truly, staffing concept widens and magnifies the decision zone of managers but at the
same time, staffing entails a balanced sharing of the staffing function with the
personnel department.
7 Name the components of staffing.
Answer:
The modern concept of staffing comprises of three important components.
1. Recruitment: Recruitment is a positive step which aims as attracting a number of
candidates to apply for the given job. The higher the number of people who
apply for a job, the higher will be the possibility of getting a suitable employee
one of them.
2. Selection: Selection, on the other hand, is a negative process. It aims at selecting
the most reliable person out of the candidates who have applied for the job.
3. Training: Training is concerned with up-gradation the knowledge and skills of the
employees so that their abolition to perform can be enhanced.
Components of Staffing
8 Explain in brief the types of training.

Answer:
Depending upon the purpose of training of the following kinds of training
programmes are used in industry:-
1. Induction or Orientation Training

2. Apprenticeship Training
3. Internship Training
Now we shall discuss these kinds of training:
1. Induction or Orientation Training: Induction is concerned with introducing or
orienting a new employee to the organisation and its procedures, rules and
regulation.
When a new employee reports for work, he must be helped to get acquainted with
the work environment and fellow employees. It is better to give him a friendly
welcome when he joins the organisation, get him introduced to the organisation and
help him to get a general idea about the rules and regulations working conditions etc.
of the organisation.
The benefits of induction or orientation and socialisation of new employees are as
follows
1. It builds up the new employee’s confidence in the organisation and in himself so
that he may become an efficient employee.
2. It gives the new entrant the information he needs such as the location of locker
rooms, cafeteria and other facilities, time to break off, leave rules etc.
3. It promotes a feeling of belonging and loyalty to the organisation among
newcomers.
4. It ensures that new employee does not form false impressions regarding the
place of work because the first impression is the last impression.
2. Apprenticeship Training: Apprenticeship training involves imparting knowledge and
skills, in a particular craft or trade such as printing tool making etc. The government of
various countries have passed laws which make it obligatory on certain employers to
provide apprenticeship training to young people. Apprenticeship training is desirable
in industries which require a constant flow of new employees expected to become all-
round craftsmen. It is very much prevalent in printing trade building and construction
and vocations like mechanics, electricians, welders etc. it is similar to on-the-job
training.
Under apprenticeship training, the trainee is placed under the supervision of an
experienced person who imparts him the necessary skills and regulates his
performance. The advantages of apprenticeship training to the trainees are that they
receive a stipend while learning and acquire valuable skills which command a high
wage in the labour market. In India, there are so many ‘earn when you learn’
schemes, both in the private as well as public sector undertakings. This is also
advantageous to employers. Some employers look upon apprentices as a source of
cheap labour.
3. Internship Training: Under this method, an educational institute enters into an
arrangement with industrial enterprises for providing practical knowledge to its
students. Internship training is usually meant for such vocations where advanced
theoretical knowledge is to be backed up by practical on the job experience. For
instance, engineering students are sent to big industrial enterprises for gaining
practical work experience and medical students are sent to big hospitals to get

practical knowledge.
The period of such training varies from six months to two years. The trainees do not
belong to the business enterprises but they come from the vocational or professional
institutions. It is quite usual that enterprises giving them training absorb them by
offering suitable jobs.
9 Explain the term Job Analysis, Job Description and Job Specification.
Answer:
Job Analysis: Job analysis is the process of determining the tasks which comprise the
job methods and equipment used in the job and the skill and knowledge required for
the successful performance of the job. It involves a systematic and detailed study of a
job so as to determine its contents and requirements.
Job analysis serves the following purposes:
1. Job analysis provides a scientific basis for proper recruitment and selection of
personnel.
2. It helps in placing the right person on the right job.
3. Job analysis facilitates the training and development of employees by identifying
the abilities required for a job.
4. It helps in the proper evaluation of a job.
5. Job analysis helps in improving the design and methods of jobs. The information
generated by job analysis is used to prepare two statements
(a) job description and
(b) job specification.
Job Description: Job description is a written, organised and factual statement of the
nature and contents of a job.
It consists of the following information:
(a) Title or name of the job
(b) Location, code no. of the job
(c) Department concerned
(d) Duties involved in the job
(e) Working conditions
(f) Equipment used
(g) Relationship with other jobs.
Job Specification: Job specification is a formal and written statement of the minimum
human qualities required for the successful performance of a job. It specifies the
knowledge, skills, experience and aptitude which the job holder should possess. Job
specification helps in selecting and training the right person for a job.
10 Explain in brief on the job methods of training.
Answer:
Under this method, the worker is given training at the workplace by his immediate
supervisor. In other words, the worker learns in the actual work environment. It is
based on the principle of learning by doing’. On-the-job training is considered to be
the most effective method of training the operative personnel.
On the job training is suitable for imparting skills that can be learnt in a relatively

short time. It has the chief advantage of strongly motivating the trainee to learn. It is
not located in an artificial situation. It permits the trainee to learn on the equipment
and in the work- environment, On-the-job training methods are relatively cheaper
and less time-consuming. Another important factor in on-the-job training is that
supervisor playing an important part in training subordinates.
There are four methods of on-the-job training described below –
1. Coaching: Under this method, the supervisor imparts job knowledge and skills to
his subordinate. The emphasis in coaching or instructing the subordinate is on
‘learning by doing’ This method is very’ effective if the superior has sufficient time to
provide coaching to his subordinate.
2. Understudy: The superior gives training to his subordinate as his understudy or
assistant. The subordinate learns through experience and observation. This technique
prepares the subordinate to assume the responsibilities of the superior’s job in case
the superior is absent or . he leaves the organisation.
3. Job Rotation: The trainee is systematically transferred from one job to another so
that he may get the experience of different jobs. This will broaden his horizon and
capacity to do a variety of jobs. Rotation of an employee from one job to another
should not be done frequently. He should be allowed to stay on a job for a sufficient
period so that he ’ may acquire the full knowledge of the job.
Job Rotation is used by many organisations to develop all-round workers. The
employees learn new skills and gain experience in handling, different kinds of jobs.
They also come to know the interrelationship between different jobs. Job rotation is
also used to place workers on the right jobs and prepare them to handle other jobs in
case of need.
4. Vestibule Traning: Vestibule training is adapted to the same work environment as
prevails at the actual work-place in the factory. Vestibule training is suitable where a
number of persons are to be trained at the same time for the same kind of work. A
vestibule training workshop may be set up by an industrial organisation when it is not
possible to give training to the employees at the work-place. The training job is
entrusted to – the qualified instructors. The main emphasis is on learning rather than
on production.
Vestibule training is an attempt to duplicate as nearly as possible the actual
conditions of the work-place. The learning conditions are carefully controlled. The
trainees can concentrate on training because they are not under any pressure of
work. Their activities do not interfere with the regular process of production. Thus
vestibule training is very must suitable where a large number of persons are to be
trained arid where mistakes are likely to occur which will disturb the production
schedules.
11 Today staffing is the activity of personnel Department/ Human Resource
Management. Explain the functions of Human Resource Management?
Answer:
Creation of Human Resource or Personnel Department: Staffing’ is the responsibility
of every manager. However, in not organisation, personnel or Human Resource

Department is set up under the charge of Personnel or Human Resource Manager.
The personnel department serves as a service department. It performs various
personnel functions assigned to it by the other departments. The Personnel Manager
enjoys the status of a specialist in personnel matters. Normally, persons with post-
graduate qualifications in Human Resource Management, Personnel Management
and Industrial Relations are preferred for this post.
The establishment of the Personnel Department does not relieve the line managers of
the staffing responsibilities. In fact, the staffing function is an inherent part of the job
of every manager. The Personnel Manager is appointed to provide expert assistance
to them in the performance of their staffing functions of manpower planning,
employment, placement, induction, training and performance appraisal. Besides
these functions, the personnel department is also responsible for motivation.
Working conditions, human relations and personnel records. We shall study these
functions under the heading of operative Functions or Responsibilities.
Functions of Human Resources Management.
There are two sets of functions of human resources management. These include
1. Managerial functions
2. Operative functions
1. Managerial Functions: The Human resources or Personnel Manager is a part of the
management. So he performs the basic managerial functions of planning, organising,
directing and controlling in relation to his department Like any other manager, the
Personnel Manager performs all the managerial functions.
2. Operative Functions or Responsibilities: The operative functions are the specific
responsibilities which are entrusted to the personnel department under the
supervision of the Human Resource Manager. There are concerned with,
employment, training, development, compensation, integration and maintenance of
personnel of the organisation.
A brief description of the basic responsibilities or functions of the Personnel Manager
is given below –
1. Employment of Personnel: The first major responsibility of the Personnel Manager
is the employment for proper kinds and a number of persons necessary to do various
jobs in the Organisation. It involves .manpower, planning, recruitment, selection,
placement etc. of the personnel.
Manpower planning helps to determine the manpower requirements for various
departments. Recruitment is concerned with the sources of supply of work force,
whereas selection involves a number of steps to employ the right type of people for
various jobs. The selected employees are placed in the jobs for which they are better
suited.
2. Training and Development: After placing the people on various jobs, personnel
management is concerned with imparting them training to do their work efficiently.
Proper development of Personnel is essential to increase their skills in the
performance of their jobs. The personnel department designs and runs the
appropriate training programmes for developing the necessary skills among the

personnel.
3. Compensation: This function is concerned with the determination of adequate .and
fair remuneration of the people for their work. The employees can be compensated
both in terms of monetary as well as non-monetary rewards. Factors which must be
borne in mind while fixing the compensation or remuneration of personnel are their
basic need, requirements of jobs, legal provisions regarding minimum wages, the
capacity of the organisation to pay, wage level afforded by the competitors etc. For
fixing the wage levels, the Personnel Manager can also make use of techniques like
job evaluation, performance rating etc.
4. Motivation of Workforce: Employees work in the Organisation for the satisfaction
of their needs. In many cases, it is found that they do not contribute towards the
organisational goals as much as they can. This happens because employees are not
adequately motivated. The personnel Manager helps the various department
managers to devise a system of financial and non-financial rewards to motivate the
employees.
5. Maintainance of Good Working Conditions: The employees must be provided with
good working conditions so that they like their work and work-place and maintain
their efficiency. Working conditions influence the motivation and morale of the
employees. These include the measures taken for the health, safety and comfort of
the working force. The personnel department also provides for various welfare
services which relate to the physical and social well-being of the employees. These
may include the provision of the cafeteria, restrooms, counselling, group insurance,
education of children of employees, recreational facilities etc.
6. Achieving Good Human Relations: The personnel Manager must provide an
efficient system of communication to ensure the two-way exchange of information.
Many time industrial disputes occur because of poor communication. The personnel
manager should always keep himself in contact with, the trade union leaders to
understand their grievances and attempt to remove them so that harmony is
maintained in the organisation,
7. Personnel Records: It is the duty of the personnel department to maintain records
of the employees working in the enterprise. It keeps full records about their training,
achievement, transfer, promotion etc. It preserves many other records relating to the
behaviour of personnel like absenteeism and labour turnover and personnel
programmes and policies of the organisation. It also maintains various records and
registers as required by the Factories Act, the employees state Insurance Act and
other Labour Laws.
12 Why is "employment interview'' conducted in the process of selection?
Ans: The purpose of an employment interview is to evaluate the applicant's suitability
for the job post by seeking information from him and to check whether there exists a
suitability between the person and the type of job.
13 It is described as the managerial function of filling and keeping filled the positions in
the organization structure. Which function of management is referred to here?
Ans: Staffing function is referred to here.

14 "Staffing makes for higher performance by putting the right person on the right
job". Is this statement true or false?
Ans: This statement is true as staffing helps in improvement of performance through
arranging the right people, at the right time, and on the right job.
15 Apha Enterprises is a company manufacturing water geysers. The company has a
functional structure with four main functions Production, Marketing, Finance and
Human Resource. As the demand for the product grew, the company decided to hire
more employees. Identify the concept which will help the Human Resource
Manager in deciding the actual number of persons required in each department.
Ans: Workload Analysis is a concept that will assist the Human Resource Manager in
determining the real number of people necessary in each department.
16 Why informal system of communication is generally referred as the ‘grapevine
communication’?
Ans. Informal system of communication is generally referred to as grapevine
communication because it spreads throughout the organization with its branches
going out in all directions in utter disregard to the levels of authority.
17 Why is the "Aptitude Test" conducted in the process of selection?
Ans: The Aptitude Test in the process of selection is conducted to measure an
individual's potential for learning new skills.
18 It is recruitment, selection, development, utilization, compensation and motivation
of human resources of the organization. Give the name of the concept mentioned
here.
Ans: Human Resource Management.
19 These are run by the Government as a source of recruitment for unskilled and
skilled operative jobs. What is being referred to here?
Ans: Employment exchanges.
20 Which type of personnel do management consultancy firms recruit?
Ans: Management consultancy firms help the companies/ firms to recruit technical,
professional and managerial personnel.
21 Why induction is not required in the internal source of recruitment?
Ans: As employees are already familiar with the organization, an induction
programme is not required in case of internal source of recruitment.
22 State the meaning of placement as a staffing function.
Ans: Once the job offer has been accepted by the selected candidate he is placed on
the new job. Proper placement of an employee reduces absenteeism. As a result,
placement refers to matching the right person to the right job.
23 It is a test used for selection of employees to measure an individual's potential for
learning new skills. Mention its name and explain two other tests?
Ans: Aptitude tests are used to measure an individual's potential for learning new
skills
Other Tests are:
 Personality Test: Personality tests provide clues to a person's emotion, mindset
and type of personality.
 Intelligence Tests: These assess a person's decision-making and adaptability
abilities.
24 Trainees are put under the guidance of a master worker to acquire a higher level of
skill, for example to become plumber, electrician, etc. Which method of training is
referred to here?
Ans: Apprenticeship program.
25 Name and define the process that helps in finding possible candidates for a job or a
function.
Ans: Recruitment is described as the process of locating potential employees and
encouraging them to apply for positions within the company. It is the entire
employment process, beginning with the initial interview.It is a constructive process
of locating potential employees and encouraging them to apply for positions within
the company. There will be more opportunities to hire better people if more people
seek jobs.
The two modes of recruitment are internal and external.
 Internal Sources: The term "internal sources of recruiting" refers to employing
personnel from within the company. In other words, people applying for
various roles are those who are currently employed by the same company. For
example, promotions and transfers.
 External Sources: Employees hired from outside the organization are referred
to as external sources of recruiting. In other words, the job seekers in this
scenario are individuals who are not affiliated with the organization. For
example, casual callers, campus placement, advertisement, management
consultants etc.
26 Mr. Naresh recently completed his M.B.A. from one of the Indian Institutes of
Management in Human Resource Management. He has been appointed as Human
Resource Manager in a Truck Manufacturing Company. The company has 1,500
employees and has an expansion plan in hand that may require additional 500
persons for various types of jobs. Mr. Naresh has been given the complete charge of
the company's Human Resource Department.
List out the specialized activities that Mr. Naresh is supposed to perform as the
Human Resource Manager of the company.
Ans: Recruitment, training, career development, compensation and benefits,
employee relations, industrial relations, employment legislation, compliance,
disciplinary and grievance concerns, redundancies, and other HR-related tasks are all
handled by HR managers.
The position necessitates keeping up with rapidly changing topics such as
employment law. As a Human Resource Manager, Mr. Naresh is expected to
undertake the following specialized tasks:
 Analysing jobs.
 Recruitment
 Selection.
 Placement and orientation.

 Training and development of employees.
 Performance Appraisal of employees.
 Developing compensation and incentive plAns:
 Maintaining labour and management relations.
 Handling grievances and complaints of employees/workers.
 Providing for the employees' social security and well-being.
 Defending the company in legal proceedings and avoiding legal entanglements.
27 Vinod - The Human Resource Manager, Umesh - The Assistant manager and Ashok -
The Marketing Head of Hitashi Enterprises Ltd. decided to leave the company.
The Chief Executive Officer of the company called the Human Resource Manager,
Vinod and requested him to fill-up the vacancies before leaving the organization.
Vinod suggested that his subordinate Rajesh is very competent and trustworthy. If
he could be moved up in the hierarchy, he would do the needful. The Chief
Executive Officer agreed for the same. Rajesh contacted 'Zenith Recruiters' who
advertised for the post of marketing head for 'Hitachi Enterprises Ltd.'. They were
able to recruit a suitable candidate for the company. Umesh's vacancy was filled-up
by screening the database of unsolicited applications lying in the office.
(a) Name the internal/external sources of recruitment used by 'Hitashi Enterprises
Ltd." to fill up the above stated vacancies.
Ans: The internal/external sources of recruitment used by 'Hitachi Enterprises Ltd." to
fill- up the various positions are listed below.
 Promotion: It was used to fill the position of human resource manager, on
which Vinod worked previously.
 Placement Agencies and Management Consultants: For the position of
Marketing Head, on which Ashok worked previously.
 Casual Callers: They are being considered for the position of Assistant
Manager, on which Umesh worked previously.
(b) Also, state any one merit of each of the above-identified sources of recruitment.
Ans: The following are the merits of the above listed sources of recruitment.
 Placement Agencies and Management Consultants: Because of their expertise
and specialization in the field of hiring new blood, they assist in attracting the
required personnel to the organization.
 Casual Callers': It's the cheapest way to get a job.
 Promotion: Promotions among current employees can be an excellent source
of new hires. Through promotions the background and reference checks need
not to be done, and the cost of induction is also saved, as the employee is from
the organization itself.
28 Explain briefly “transfers” and “promotions” as internal sources of recruitment.
Ans: The explanations are given below:
 Transfers: Job vacancies are filled through transfers by transferring qualified
personnel from one department of the organization to the department where
the vacancies exist. Transfers is a horizontal process in which employees that
are transferred are rarely given new duties or employment positions. Hence the

nature and type of job remains the same.
 Promotions: Promotion means when an employee is being placed at a position
of increased responsibility and authority. Promotion and career planning is
important. Promotions and transfers among current employees can be an
excellent source of new hires. Promotion refers to an employee being
promoted to a higher position with increased status, compensation, and
responsibility.
29 Explain briefly 'Casual Callers' and 'Labour Contractors' as external sources of
recruitment.
Ans: Casual Callers: Many reputable businesses maintain a database of uninvited
applicants in their offices. It approaches them as vacancies exist and persuades them
to apply for the positions available. This list can be screened and the best candidate is
selected.
Labor Contractors: Employers turn to labour contractors to hire low-skilled workers
or labourers. Labor contractors keep in close contact with labourers and other
workers, and they call them for work as and when needed.
30 Present day human resource management is a broader concept." Explain?
Ans: Present day human resource management is a broader concept because today's
human resource management the following activities are performed:
 Assists in the achievement of company goals as well as personal goals of
personnel.
 Employees efficiently and effectively use their skills and expertise.
 Increase employee job satisfaction.
 Maintain a high level of morale and positive interpersonal relationships inside
the organization.
 It also focuses on ensuring peace and harmony within the employees of the
organization.
 This aspect of HRM is also concerned with the working environment and
facilities.
 It is a highly delicate sector that necessitates cautious interactions with labour
or employee unions, addressing their grievances, and effectively resolving
disputes in order to keep the company at peace and concord.
31 'Internal sources of recruitment are better than external sources of recruitment."
Do you agree with this statement? Give any two reasons in support of your answer?
Ans: Yes, i agree with this statement and the two reasons in support of my answers
are:
 Qualified Personnel: An external source of recruiting allows qualified
individuals from outside the organization to join. This is advantageous to both
the organization and the external applicants.
 Wider Choice: Using an external source of recruitment increases the number of
applicants by a factor of ten, hence expanding the range of options. After
assessing the qualities and talents of all applicants, the managers can appoint
the most competent individuals.

32 The workers of a factory are unable to work on new machines and always demand
the help of their supervisor. The Supervisor is overburdened with their frequent
calls. Suggest the remedy?
Ans: Workers of factories should be trained through Vestibule Training. Employees
are trained on the equipment they will be working with.. However, the training takes
place away from the actual work environment. In a classroom, a realistic work
atmosphere is provided, with employees using the same materials, files, and
equipment they are supposed to use at the workplace. This is usually done when
employees are required to handle sophisticated machinery and equipment.
33 Define training. How is it different from Development?
Ans: The enhancement of skills, abilities, and competency required for a given work
profile is referred to as training. The differences between training and education are
highlighted in the following sections.
Training Development
Simply put, it is the process of an To put it simply, it is a learning and
employee's knowledge and abilities growth process.
being increased.
Employees are given the opportunity to Development is a term used to describe
acquire skills, competencies, and a procedure that aids in the
learning in accordance with post-duty understanding of an employee's overall
obligations through training. growth and improvement of skills.
Training is held with the goal of Developments are carried out in order to
enhancing the knowledge and skills improve knowledge and expertise in
required to fulfil their current positions. order to meet future problems.
34 Describe briefly the steps involved in the process of staffing.

Ans: The steps involved in the process of staffing are as follows:
A. Estimating Manpower Requirement:
 This step involves drafting work force requirements, defining job-related
activities, and estimating the type of employees with a certain set of skills,
knowledge, qualifications, and experience.
 Workforce analysis enables the enterprise to assess the number and type of
employees necessary for the completion of a work.
B. Recruitment:
 Recruitment can be defined as the process of locating potential employees and
encouraging them to apply for positions within the company.
 Employees can be found through both internal and external sources.
 The term "internal sources of recruiting" refers to employing personnel
from within the company. In other words, people applying for various
roles are those who are currently employed by the same company. For
example, transfers, promotions etc,

 Employees hired from outside the organization are referred to as
external sources of recruiting. In other words, the job seekers in this
scenario are individuals who are not affiliated with the organization. For
example, advertisement, casual callers, campus placement, management
consultants etc.
C. Selection:
 It is the process of choosing and appointing the right candidates for the right
job in an organization by conducting various exams( verbal or written), tests
and interviews.
 The type of tests include:
 Personality tests
 Aptitude tests
 Situational tests
 Interest tests etc.
It guarantees that the organization receives the most qualified candidate.
The candidates' self-esteem and prestige are boosted as a result of the
selection process.
D. Placement and Orientation:
 As a result, Orientation involves presenting the selected person to other
employees as well as familiarising him with the organization's rules, regulations,
and policies.
 The employee filling the position or post for which the person has been chosen
is referred to as placement.
E. Training and Development:
 Through various ways, systematic training assists employees in improving their
abilities and knowledge in performing their duties.
 Employee development entails an employee's improvement in all areas,
including performance, knowledge, and so on.
 The training could be on the job training or off the job training depending upon
the nature and type of work.
F. Performance Appraisal:
 Performance appraisal means evaluating an employee's current or past
performance as against certain predetermined standards.
 Once an employee has undergone training his/ her performance is evaluated.It
is focused with the continual examination of an organization's personnel
performance.
 This step helps in finding out the deviations, as well as improvement areas.
G. Promotion and Career Planning:
 Promotion entails being assigned to positions with greater responsibilities.
 Employee morale must be boosted, and they must be motivated to reach their
maximum potential, therefore promotion and career planning are critical.
H. Compensation:
 All forms of payment made by an organization to its personnel are referred to

as compensation. E.g.salaries, incentives, commission etc.
35 What is meant by recruitment? How is it different from selection?

Ans: The procedure of locating and motivating qualified applicants to apply for a
specific position is referred to as recruitment.. As against this, selection is the
procedure of screening and choosing the required candidates out of the gathered
pool. The following points highlights difference between recruitment and selection
Basis of Recruitment Selection
Difference
Meaning Recruitment refers to Selection refers to the process of
the process of finding choosing the right candidate out of the
and instigating the gathered pool developed at the time of
required personnel for recruitment.
a job.
Sequence In the staffing process, In the staffing process, selection is at the
recruitment is at the third stage and succeeds recruitment.
second stage.
Employment The candidates The candidates who successfully
Contract gathered under complete the process are offered an
recruitment are employment contract by the
not offered any organization containing such
employment contract information as date of joining , terms
from the organization. and conditions , etc.
Characteristics Recruitment process Selection process involves choosing only
involves attracting as appropriate candidates and rejecting the
many people as non- suitable ones.
possible for the job.
36 What are the advantages of training to the individual and to the organization?
Ans: Training is an important aspect of any organization. It tries to improve people's
abilities and skills in order for them to execute a job. Training is an important aspect
of the job that aims to improve a person's aptitude and expertise in accordance with
the job requirements. The complexity of work has increased as the business
environment has changed. Thereby, training has become even more essential.
The following are some of the most important advantages of training for both the
employee and the company.
Benefits to the Employee
 Improved Career Prospects: Employee training improves their ability and
knowledge, which helps them advance in their careers.
 Earn More: By helping the individual to learn more it assists them to earn more.
Training enhances the individual's understanding and knowledge. Thereby, it
improves their efficiency and performance. As a result, they will be able to earn
more money.
 Less Prone to Accidents: Training aims to make staff more proficient and

efficient in operating machines. Jobs that require people to deal with
sophisticated machines or in high-risk regions should place a heavy emphasis
on training and development, as it aids them in adopting preventative
measures. As a result, the employee is less likely to have an accident.
 Self-Confidence: Individual development and training directs individuals to
work more efficiently, which in turn boosts required morale. It boosts their self-
esteem and self-reliance, resulting in increased job satisfaction.
Benefits to the Organization
 Less Wastage: Training is a concept that involves systematic learning of work. It
is a more efficient means of learning than any hit-or-miss approach. As a result,
less time and money is wasted. As a result, it aids in the most efficient use of
resources.
 Increased Profits: Training improves people's productivity at work by
developing them and making them more efficient. The company's profits
increase as both qualitative and quantitative productivity increases.
 Managerial Efficiency: Training trains personnel to meet new problems in a
variety of settings, which improves managerial efficiency. This enables children
to develop appropriate answers to a variety of situations. Training also equips
the future managers to take precautionary steps in case of emergency.
 Absenteeism is Reduced: Effective training helps to increase staff morale. As a
result, it aids in the reduction of absenteeism and staff turnover.
 Effective Response: It helps in obtaining effective response to fast changing
technological and economic environments.
37 In a leading manufacturing company there was a meeting regarding the importance
of a function of management which was very much required in meeting the growing
needs of good employees and solving complicated issues related with human
behavior at the workplace. They also discussed about the most important resource
of an organisation.
Which function of management is indicated here in the above case? Give one
advantage of this function.
Which most important resource of an organisation is indicated here?
Answer:
The function of management which is indicated here is Staffing.
One advantage of staffing is:
1. Staffing helps in obtaining competent personnel for the organisation.
o The most important resource of an organisation indicated here is ‘Human
Resource’.
38 Pluto Utensils is a very old manufacturing company. Recently it was found by the
management that the employees who were working in the organisation were
lethargic with limited skills. The management compared its organisation with that
of others and found a huge difference. When a proper analysis of job positions and
their occupants was done it was found that many of them were not working at
places suitable to them. This increased the worry of the management. The

organisation had already spent five decades in the industry and was worried about
the successful continuation of business which required capable future managers but
the current employees were not much capable. The company had recently suffered
huge losses. It was running out of budget. To add to its problems the number of
employees was more than required so the company had to bear additional cost. It is
said that one bad thing leads to another. This came true for the company when
there was some negative reporting about its HR practices in a daily newspaper
where it was mentioned that the employees were not satisfied and suffered with
low morale. The scene forty years back was different when the company used to be
the number one brand in its segment.
Which function of management doesn’t seem to be working well for the company in
the above case?
Identify the different benefits, associated with the proper utilisation of this
function, the company would have enjoyed if everything had worked in its favour.
Answer:
The function of management which doesn’t seem to be working well for the
organisation is
‘Staffing’.
The benefits of staffing highlighted above are:
1. Competent Personnel. Recently it was found by the management that the
employees who were working in the organisation were lethargic with limited
skills.
2. Right person for right job. When a proper analysis of job positions and their
occupants was done it was found that many of them were not working at places
suitable to them.
3. Succession Planning. The organisation had already spent five decades in the
industry and was worried about the successful continuation of business which
required able future managers but the current employees were not much
capable.
4. Optimum utilisation of human resources. To add to its problems the number of
employees were more than required, so the company had to bear additional
cost.
5. Improves job satisfaction and morale of the employees. This came true for the
company when there was some negative reporting about its HR practices in a
daily newspaper where it was mentioned that the employees were not satisfied
and suffered with low morale.
39 ‘Seven Colours’ is a progressive company with a very good HR record. Recently it

created a pool of prospective candidates for jobs to be given in various
departments. The company is always willing to complete its HR duties properly.
Various job positions exist in the company. The company makes it compulsory for
the HR department to prepare job descriptions so that necessary information about
the jobs could be created. For its decent HR practices the company has won several

awards. It knows that the most important asset of an organisation is its image and
to protect it the company should always be ready to do extra efforts. Last year
when a few groups filed a complaint against the company it made great efforts to
fight legally and came out victorious. It has a very good set up to promote the
interests of the employees. In order to give them a familiar environment the
company promotes various informal organisations and proper celebration of all
festivals. It is very responsive towards its workers and always attends to their
problems. There is a special cell in the HR department which is very responsive to
the complaints made by the employees regardless of the level at which they work.
Recently a national newspaper made a very favourite mentioning of the absence of
strikes in the company as the management-labour relations are very good and a lot
of importance is given to the demands of the labour unions. A very peaceful
environment exists in the organisation.
In the above case there are highlighted various duties of the HR department.
Identify them.
Answer:
The various duties of the HR department highlighted above are:
1. Recruitment is done in order to create the pool of candidates who can then be
made to go through the process of selection. Recently it created a pool of
prospective candidates for jobs to be given in various departments.
2. Analysing jobs and preparing job descriptions. The Company makes it
compulsory for the HR department to prepare job descriptions so that necessary
information about the jobs could be created.
3. Defending the company in case any law suit is filed against the company. Last
year when a few groups filed a complaint against the company it made great
efforts to fight legally and came out victorious.
4. Helps in fulfilling social needs thus providing welfare and social security. In
order to give them a familiar environment the company promotes various
informal organisation and proper celebration of all festivals.
5. Handles grievances of the employees and makes timely attention to the
complaints made by them. There is a special cell in the HR department which is
very responsive to the complaints made by the employees regardless of the level
at which they work.
6. Maintaining proper relations between labour and management. Recently a
national newspaper made a very favourite mentioning of the lack of strikes in
the company as the management-labour relations are very good and a lot of
importance is given to the demands of the labour unions.
40 Mr. Naresh recently completed his M.B.A. from one of the Indian Institutes of
Management in Human Resource Management. He has been appointed as Human
Resource Manager in a Truck Manufacturing Company. The company has 1,500
employees and has an expansion plan in hand that may require additional 500
persons for various types of jobs. Mr. Naresh has been given the complete charge of
the company’s Human Resource Department.

List out the specialised activities that Mr. Naresh is supposed to perform as the
Human Resource Manager of the company.
Answer:
Being Human Resource Manager of the company Mr. Naresh is supposed to perform
the following specialised activities:
1. Recruitment
2. Job analysis, collecting information about jobs in order to prepare job
description.
3. Developing compensation and incentive plans.
4. Making arrangements for training and development of employees.
5. Maintaining good relations with labour unions.
6. Handling grievances and complaints.
7. Taking care of social security and welfare of employees.
8. Protecting the company against law suits, and avoiding legal complications.
41 Aditya Rubbers is thinking of knowing the worth of its employees but it is unable to
do so yet. The firm now has decided to include a step in its staffing process through
which it can judge the performance of its employees.
Name the step the organisation will include.
Name two more other steps in the staffing process which precede this step.
Answer:
The step discussed here is ‘Performance Appraisal’.
The following two steps in the process of staffing are:
1. Placement and Orientation.
2. Training and Development.
42 Sahil, the director of a garments company, is planning to manufacture bags for the
utilization of waste materials of one of his garments unit. He decided that this
manufacturing unit will be set up in a rural area of Orissa where people have very
less job opportunities and lab our is available at very low rate. He also thought of
giving equal opportunities to men and women.
(i) Identify and state the next two steps that Sahil has to follow in the staffing
process after selecting the above heads.
(ii)Also identify two values which Sahil wants to communicate to the society by
setting up this manufacturing unit. (4)
Ans.
(i) Next two Steps of staffing process:
(a) Placement and Orientation: Placement means to join the post for which he/she has
been selected. Under orientation the employee is given a brief presentation about
the company and is introduced to his superiors, subordinates and colleagues.
(b) Training and Development: At this step of process of staffing, training and
development are imparted to the employees so that their efficiency and
effectiveness is increased.
(ii) Values:
(a) Development of backward areas.

(b)Equality.
43 Zenith Ltd. is a highly reputed company and many people wanted to join this
company. The employees of this organization are very happy and they discussed
how they came in contact with this organization. Aman said that he was introduced
by the present Sales manager, Mr. John. Benu said that he had applied through the
newspaper and was appointed as H.R. John. Vaibhav said that he was
either related to any of the employee of the organization nor there was any
advertisement in the newspaper even then he was directly called from HM
Ahmedabad from where he was about to complete his MBA.
1. The above discussion is indicating an important function of management. Name
the function of management.
2. The management function identified in part (a) follows a particular process.
Explain the step of this process which is being discussed in the above para.
Ans. (a) Staffing.
(b) Recruitment – It is defined as the process of researching for prospective
employees and stimulating them to apply for jobs in the organization.
44 Blue Heavens Ltd. purchased a new hi-tech machine from Germany for
manufacturing
high quality auto components in a cost effective manner. But during the production
process, the manager observed that the quality of production was not as per
standard. On investigation it was found that there was lack of knowledge amongst
the employees of suing these hi-tech machines. So, frequent visit of engineers was
required form Germany. This resulted in high overhead charges.
Suggest what can be done to develop the skills and abilities of employees for
Producing high quality products by using these hi-tech machines. Also state how the
employees or the organization will benefit from your suggestion.
Ans.
Training of employees
Benefits to the organization or employees:
1. Avoid wastage of effort & money
2. Enhances employee productivity
3. Equips future managers
4. Increases employee morals & reduces absenteeism
5. Obtaining effective response to fact changing environment
6. Improved skills and knowledge of the individual
7. Increased performance by the individual
45 Ms. Neeta recently completed her Post-Graduate Diploma in Human Resource
Management. A few months from now a large steel manufacturing company
appointed her as its Human Resource Manager. As of now, the company employs
800 persons and has an expansion plan in hand which may require another 200
persons for various types of additional requirements. Ms. Neeta has been given
complete charge of the company’s Human Resource Department.
(a) State any two functions she must be performing.

(b) What problems do you foresee in her job? What steps is she going to take to
perform her job efficiently? (6 mark)
Ans.
1. Ms. Neeta is must be performing these functions as a HR manager:
1. Analysing jobs and collecting information about jobs to prepare job descriptions.
2. Developing compensation and incentive plans
2. Since the company has an expansion plan requiring 200 more persons for various
types of additional requirements, Ms. Neeta will have to recruit and select those
persons from outside the organization. For this she will have to invite candidates to
apply for the jobs through external sources of recruitment such s advertisements,
placement agencies, recommendations of employees, etc.
Then, Ms. Neeta will have to arrange for various types of training (e.g. apprenticeship
training, vestibule training, etc.) of the employees to make them efficient.
She will have to handle workers’ grievances and complaints and maintain labour
relations. She will have to provide for social security and welfare of employees.
46 Name the methods of recruitment in the following cases:
1. A company gets applications on and off even without declaring any vacancy.
However, as and when the vacancy arises, the company makes use of such
applications.
2. Casual vacancies of unskilled or semi-skilled jobs when there is a rush of order or
when some permanent workers are absent.
3. Recruitment by which most of the senior positions of the industry as well as
commerce are filled. (3 marks)
Ans.
1. Casual callers
2. Direct recruitment
3. Advertisement
47 Anuroop runs a law firm in Hyderabad. His firm offers valuable financial and legal
consultancy services to the clients. Whenever the firm hires any new employees, on
the first day of their joining, they are welcomed to the organization and are given
details about hours of work, holiday requests, sickness procedure, dress code, lunch
arrangements, introduced to the daily operations and key people in the workplace,
etc. They are also familiarized with the organistion’s policies and procedures,
including complaints and dispute resolution, sexual harassment, emergency exits
and evacuation procedure.
1. Name the type of training which is being referred to in the above lines.
2. Identify and explain the human needs of the new employees that the being
fulfilled by Anuroop through this training.
Ans.
1. Introduction training is being referred to in the above lines.
2. The various types of human needs of the new employees that are being fulfilled by

Anuroop through induction training are stated below:
2. Basic Physiological Needs:
2. Safety / Security Needs:
3. Affiliation / Belonging Needs
48 Company A requires new employees. For this the company has started making
efforts. The financial condition of the company is not very good but the requirement
of employees at key positions is required.
Company B doesn’t want too much complication in the process of selection and
placement. It wants to keep the process simple. The targets of production are
already very demanding for the top management. They want a way where their
least efforts are required to form the required taskforce to be involved for special
projects.
Company C is struggling with lack of balance in the composition of its workforce.
There are certain departments in which the number of employees is surplus
whereas there are certain departments in which there is shortage of required
number of employees.
How can Company A solve its problem? 1
Which type of recruitment will be good for Company B?
What do you think could be the solution for Company C?
Answer:
The Company A can solve its problem by going for Internal Recruitment as in this way
the process of selection and placement will be simplified. The candidates who are
already part of the organisation can be more easily judged and evaluated. The
reliability component will also be high in this type of recruitment.
The Company B should go for Internal Recruitment. This mode of recruitment will be
cheaper and the Company can thus save money which is required more in case of
external recruitment.
The Company C should opt for Internal Recruitment as employees can be transferred
from surplus areas to areas where there is shortage of employees. So an optimum
balance can be achieved within the departments.
The concept of management which is highlighted in the above case is ‘Merits of
Internal Recruitment’.
49 Anjana chemicals is looking for qualified and talented people to apply for vacant
jobs in the organisation. With the passage of time the organisation has learned a lot
with its experience. It knows when it goes for final selection of candidates, if will
have to
design different tests. They want to test the employees on the basis of their learning
and decision making ability. The company wants to ensure proper testing of the
recruited candidates. After this the candidates will be judged on the basis of in-
depth formal conversation.
After the selection the candidates are placed and trained. Employees have to be
trained on the equipment they will be using but this training will take place away
from the workplace.

1. Which type of recruitment should the company depend upon?
2. Which type of test should be conducted done by the organisation to suit their
need?
3. Which stage in the selection process is highlighted after the written test?
4. What type of training is given to the candidates?
Answer:
1. The company should depend upon external recruitment to meet its needs.
Anjana chemicals is looking for qualified and talented people to apply for vacant
jobs in the organisation.
2. The type of test needed by the organisation to suit their need is intelligence test.
They want to test the employees on the basis of their learning and decision
making ability.
3. The stage in the selection process which is highlighted after the written test is
employee interview. After this a stage in the selection process will come when
the candidates will be judged on the basis of in-depth formal Conversation.
4. The type of training given to the candidates is vestibule training. Employees have
to be trained on the equipment they will be using but this training will take place
away from the workplace.
50 A company x Ltd. is setting up a new plant in India for manufacturing auto
components. India has highly competitive and cost-effective production base in this
sector. X Ltd. is planning to capture about 40% of the market share in India and also
export to the tune of at least $5 million in about 2 years of its planned operations.
To achieve these targets, it requires a highly trained and motivated workforce. You
have been retained by the company to advise it in this matter.
(i) which sources of recruitment the company should rely upon?
(ii) Which methods of training should company initiate? (4 marks)
Ans.
1. The company should rely upon the following external sources of recruitment
because it is setting up a new plant and requiring large number of employees with
latest technology. So, it needs to recruit technical, professional and managerial
personnel.
● Advertisement
● Management consultants
● Campus recruitment.
2. The company should initiate following methods of training
● Apprenticeship training
● Vestibule training
● Internship.
51 Though the company XYZ has started its recruitment timely the process is
T1 ore it has decided to use internet for its help so that it can get qualified
personnels. The organisation knows that its challenges are not going to be over. It
decides to have different types of good quality tests at the stage of selection.
The three types of tests are:

1. Test A will involve measuring the ability of the employees to learn new skills.
This test can somehow foretell the ability of an individual to develop.
2. Test B will involve measuring the current existing skills of the employees.
These skills are the ones which are already possessed by the employees.
3. Test C will check the applicant’s reaction to emotions evaluating, value based
and maturity evaluating questions. However these tests are tough to be
designed and would pose challenge to the organisation.
o Which specific type of external recruitment is later adopted by the
company?
o Which one more benefit will occur with this new adoption?
o Identify the different tests given in the above case.
Answer:
In the above case:
1. The Company is doing external recruitment. Since the process is taking a lot of
time.
2. The specific type of external recruitment which is adopted by the company is
web publishing. The Company then decides to use internet for its help.
3. Since it is an external source of recruitment it will give a wider choice to the
organisation in terms of employees. A large number of people can apply as large
number of people will have access to the net.
4. The three different tests given in the above case are:
o Test A is aptitude test. Measuring the potential of the employees to learn
new skills.
o Test B is trade test. Measuring the current existing skills of the employees.
o Test C is personality test. Checking the applicant’s reaction to emotions
evaluating, value based and maturity evaluating questions.
52 Sharmila, a very able HR manager, is called by her boss. He tells her to judge
whether there is under manning or over manning in the organisation. She takes her
work sincerely and finds out that the total number of employees in the organisation
is less than required. Then she starts a process of searching potential employees for
the organisation. In her efforts to do so she adopts three ways:
1. She goes to various MBA colleges to find out new talent.
2. She talks to the existing employees for information about candidates in their
know-ledge who can be recruited in the organisation.
3. She asks for data base of the candidates who applied last year but could not
make it to the organisation.
o Which type of analysis is done by Sharmila?
o Which process is started by Sharmila to meet the problem of under
manning?
o Identify different types of sources of external recruitment highlighted in
the above case.

Answer:
1. The type of analysis done by Sharmila is workforce analysis. Her boss tells her to
judge whether there is under manning or over manning in the organisation.
2. The process started by Sharmila to meet under manning is recruitment. She then
starts a process of searching potential employees for the organisation.
3. The different types of sources of external recruitment highlighted in the above
case are:
o Campus recruitment. She goes to various MBA colleges to find out new
talent.
o Employee recommendation. She talks to the existing employees for
information about candidates in their knowledge who can be recruited in
the organisation.
o Casual callers. She asks for data base of the candidates who applied last
year but could not make it to the organisation.
53 Ashish, the Marketing Head, Raman, the Assistant Manager and Jyoti, the Human
Resource Manager of ‘Senor Enterprises Ltd/ decided to leave the company. The
Chief Executive Officer of the company called Jyoti, the Human Resource Manager
and requested her to fill up the vacancies before leaving the organization. Informing
that her subordinate Miss Alka Pandit was very competent and trustworthy, Jyoti
suggested that if she could be moved up in the hierarchy, she would do the needful.
The Chief Executive Officer agreed for the same. Miss Alka Pandit contacted ‘Keith
Recruiters’ who advertised for the post of marketing head for ‘Senor Enterprises
Ltd. They were able to recruit a suitable candidate for the company.
Raman’s vacancy was filled up by screening the database of unsolicited applications
lying in the office.
1. Name the internal/external sources of recruitment used by ‘Senor Enterprises
Ltd.’ to fill up the above stated vacancies.
2. Also state any one merit of each of the above identified source of recruitment.
Answer:
1. Sources of recruitment used by ‘Senor Enterprises Ltd.’:
o Promotion—for the post of Human Resource Manager
o Placement Agencies and Management Consultants—for the post of
Marketing Head
o Casual Callers—for the post of Assistant Manager
2. One merit of each source of recruitment:
o Promotion. Promotion of employees helps in improving their motivation,
loyalty and satisfaction level.
o Management Consultants. Management Consultancy firms help the
organization to recruit technical, professional and managerial personnel.
They recommend suitable names to their clients.
o Casual Callers. Maintaining a database of unsolicited applicants in their
offices helps the organization in reducing the cost of recruiting workforce.
It is the cheapest source of recruitment.

54 Identify the type of recruitment in the following cases:
1. In a cotton cloth manufacturing company the productivity has declined during
last couple of years. When the senior management decides to go into the root
cause they find that there is lack of new talent in the organisation and the
organisation is suffering from ‘inbreeding’.
2. In ‘Make my dress’, a company with a vision, employees have a low spirit of
competition and their enthusiasm level is very low as they find it difficult to
have a good level of competition.
3. In a company there are many highly qualified personnel who are trained in
different scenarios. They have a lot of experience and knowledge about the
latest in the market.
4. A company XYZ is enjoying wider choice of employees and is doing great.
5. There is a lot of dissatisfaction among the existing employees in an
organisation. This
is due to reduced chances of promotion.
6. A budding organisation has a confused approach towards staffing. There have
been
frequent transfers resulting in the reduction of productivity.
7. An organisation has a policy of time bound promotions which has made the
employees lethargic.
8. The recruitment process of an organisation is very costly. They have to spend a
lot of
money on expenses like advertisement.
Answer:
1. Internal recruitment
3. External recruitment
55 Mohit Gupta is working with ‘Yellow Security Services ltd.’ He is also recruiting
security guards for the company. The company provide security services in Delhi
and Noida at short notice to various companies. The guards are recruited on
temporary basis. The guards provided by this company are known for their honesty
and punctuality. Mohit Gupta is well known in his village for providing employment
to unskilled people.
1. Name the source of recruitment used by ‘Yellow Security Services Ltd.’
2. State any one disadvantage of this source of recruitment.
3. Identify the need of ‘Security Guards’ which is being fulfilled by the company
as per Maslow’s need hierarchy.
4. Identify any tivo values communicated to the society in the above stated case.

Answer:
1. External source of Recruitment—Labour contractor.
2. The main disadvantage of this source of recruitment is that in case the
contractor leaves the organisation, all the workers employed through him will
also quit.
3. Basic Physiological needs.
4. Two values communicated to the society are as follows:
o Social responsibility by creating employment opportunities.
o Upliftment of the weaker section of the society.
56 Safal Hain Hum’ is a company having a very good HR department. It provides
learning opportunities that are designed to assist the employees to achieve w . With
the passage of time the organisation has learned several methods of training. In one
of the methods the trainee is put under the guidance of a master worker for skilled
jobs. Moreover, things are not easy for the organisation at the stage of selection
process. The recruitment process followed is very lengthy and costly for the firm.
Secondly, a very large number of candidates appear for the different posts after
recruitment is started. However, at the first stage of the selection process the
managers eliminate unqualified and unsuitable applicants on the basis of the
reasons which are not found in their application forms as they are not fit to meet
basic requirements.
1. What concepts does ‘Safal hain Hum’ help achieve its employees?
2. Which type of ‘on-the-job’ training is provided by the organisation to its
employees?
3. At which stage of the selection process do the managers get rid of unqualified
candidates?
4. Which type of recruitment is used by the company to get the potential
candidates?
Answer:
1. ‘Safal hain Hum’ helps employees achieve development. It provides learning
opportunities which are designed to assist the employees to achieve growth.
2. The type of training provided by the organisation to its employees is
apprenticeship.
Under this training the trainee is put under the guidance of a master worker.
3. The stage of the selection process at which the managers get rid of unqualified
and unsuitable candidates is preliminary screening. At the first stage of the
selection process the managers eliminate unqualified and unsuitable applicants
on the basis of the reasons which were not found in their application forms.
4. The type of recruitment which is used by the company to get the potential
candidates is external recruitment. This process is very lengthy and costly.
57 Bhuvan Ltd. is highly reputed company. The employees of this organization
discussed how they came in contact with this organization. Reena said she was
introduced by the Purchase manager (Mr. John. Neetu said she applied through
newspaper and was appointed as Finance manager).

Indu said she was directly called by the company from her IIM institute after
completing MBA.
1. Identify the different sources of recruitment.
2. Name the function of management discussed in above para.
Ans. (i) (a) Reena’s source of recruitment recommendation from existing staff.
(b) Neetu’s source: Media advertising
(c) Indu’s source: Campus recruitment
(ii) Function discussed in above para is staffing.
58 The workers of ‘Gargya Ltd.’ are unable to work on new computerized machines
imported by the company to fulfil the increased demand. Therefore, the workers
are seeking extra guidance from the supervisor and the supervisor iis overburdened
with the frequent calls of workers. Suggest how the supervisor, by increasing the
skills and knowledge of workers, can make them handle their work independently.
Also state any three benefits that the workers will derive by the decision of the
supervisor. (4 marks)
Ans. Training of employees / Vestibule training / On the job training
59 Identify the type of training involved and also categorise whether it is ‘on the job’
training or ‘off the job training’:
1. In a shoe manufacturing company a group of new recruits are being trained.
They are trained under an experienced trainer Mr. Arun. He is training them
skills which will require at least six months of dedication under real work
environment.
2. A student of ABC MBA College is having a combined training analysis where he
is having two mentors. One mentor is from the college and the other is from
the company. The idea is to give real knowledge about the corporate
functioning.
3. In a steel plant training is given to the new employees on sophisticated
machines which are not being operated at the workplace. These machines are
kept away. Actual
work environment is created inside the classroom and the trainees are guided
properly there itself.
Answer:
The types of training involved in the above cases are:
1. Apprentice Programme (On the job training)
2. Internship training (On the job training)
3. Vestibule training (Off the job training)
60 Anushka is doing a course in fashion designing form an institute of repute. As a part
of the course, she has been asked to take on-the-job training in an export house for
a fortnight in order to gain an insight about various practical aspects related to
designing. Anushka, through the references from her senior, joins an export house
owned by an upcoming designer, Nandita.
1. Name and explain the type of training which Anushka has been asked to

undertake.
2. Explain briefly any one method for providing off-the-job training.
Ans.
1. Internship Training
2. Vestibule training.
61 What kind of tests will primarily be used while selecting these people in an
organization? Give reason.
1. An interior decorator
2. A computer operator
3. A public dealing officer
4. A school teacher (4
marks)
Ans. The type of tests primarily to be used for selection are the following:
1. Interest tests as these tests are used to know the pattern of interest or involvement
of a person.
2. Trade tests as these tests measure the existing skills of the individuals.
3. Personality tests as these provide clues to a person’s emotions, reactions, maturity
and value system, etc.
4. Intelligence tests as these tests are indicators of a person’s learning ability or ability
to make decisions and judgements
62 Identify the concept of staffing highlighted here:
1. ABCD is a new organisation. All the employees are new and the management
has no idea about the nature, performance and attitude of the employees. The
organisation is unable to use promotion as a way of filling the upper posts or
transfer as a way of balancing the man power in different departments.
2. The process of selection and placement has got simplified in an MNC as the
employees which are already part of the organisation can be more easily
evaluated.
3. A company during the selection process relies heavily on a formal in-depth
conversation of the applying candidate. Information is sought and personality
of the applicant is judged.
4. An important psychological test conducted to know the level of a person’s
ability to learn and make decisions and judgments.
5. When an employee passes all the tests, clears the interview and is confirmed
after reference and background checks, he has to go through this stage. The
concerned manager’s decision is to be considered here as he will be
responsible for the performance of the new employee.
6. This source of recruitment is for requirement of unskilled workers at a short
notice. The agent involved here himself is the employee of the organisation
and is in direct contact with the labourers.
7. Government agencies acting as good source of recruitment. They provide both
skilled as well as unskilled job seekers. These agencies act as link between job
seekers and job providers.

8. This process helps an organisation get assessment of the number and types of
employees required for the performance of various jobs in order to achieve
organisational objectives. (ix) Raman who is a senior manager in a company
decides to judge the performance of the employees of his department. He
makes sure that in this step of staffing process he judges their past as well as
present performance. He asks his team of five members set for this purpose to
make standards on which the employees could be judged.
Answer:
The different concepts of staffing highlighted above are:
1. Limitations of internal sources of recruitment.
2. Merits of internal sources of recruitment.
3. Employment interview.
4. Intelligence tests.
5. Selection decision.
6. Labour contractors.
7. Employment exchange.
8. Workload analysis.
9. Performance appraisal.

CHAPTER 7 DIRECTING
1 Give the meaning of ‘motivation’ as an element of directing.
Answer:
Motivation is the process of stimulating people to action to accomplish desired goals.
2 Explain briefly any three functions performed by a supervisor.
Answer:
The three functions performed by the supervisor are stated below:
1. Supervisor maintains day-to-day contact and maintains friendly relations with
workers and acts as a guide, friend and philosopher to them.
2. Supervisor provides good on the-job training to the workers and employees
and helps to build efficient team of workers.
3. A good supervisor analyses the work performed and gives feedback to the
workers. He suggests ways and means of developing work skills
3 Umang Gupta is the Managing Director of Denver Ltd. The company had established
a good name for itself and had been doing well. It was known for timely completion
of orders. The Production Manager, Ms. Kanta was efficiently handling the
processing of order and had a team of fourteen motivated employees working
under her. Everything was going on well. Unfortunately she met with an accident.
Umang knew that in the absence of Ms. Kanta, the company may not be able to
meet the deadlines. He also knew that not meeting the deadlines may lead to
customer dissatisfaction with the risk of loss of business and goodwill. So, he had a
meeting with his employees in which accurate the speedy processing of orders was
planned. Everybody agreed to work as team because the behaviour of Umang
Gupta was positive towards the employees of the organisation. Hence everyone put
in extra time and efforts and the targets were met on time.
Not only this, Umang visited Ms. Kanta and advised her to take sufficient rest.
1. Identify the leadership style of Umang Gupta and draw a diagram depicting
the style.
2. State any two values highlighted by the behaviour of Umang Gupta.
Answer:
1. Democratic style of leadership is being adopted by Umang Gupta. In adjoining
diagram B, C, D, and E are the subordinates of A who is a leader.
2. The two values being highlighted by the behaviour of Umang Gupta are:
o Responsibility
o Participation

4 Explain any three points that highlight the importance of directing function of
management.
Answer:
The three points that highlight the importance of directing function of management
are
described below:
1. Initiate action: Directing helps to initiate action by people in the organisation
towards attainment of desired objectives. It is the first execution function of
management.
2. Integrates employees efforts: Directing seeks to integrate the individual efforts
of employees in the organisation towards the realisation of the organisational
goals.
3. Helps to realise their potential: Directing provides effective guidance,
motivation and leadership to the employees so as to enable them to realise
their potential and capabilities.
5 Explain briefly any three measures to overcome the communication barriers.
Answer:
The three measures to overcome the communication barriers:
 Communicate according to the needs of receiver: For effective communication
it is important that the message should be adjusted according to the education
and understanding levels of the receiver.
 Be aware of languages, tone and content of message: The contents of the
message, tone, language used, manner in which the message is to be
communicated are the important aspects of effective communication.
 Ensure proper feedback: Inorder to ensure the success of communication,
questions may be asked regarding the message conveyed. Thus the
communication process may be improved by the feedback received to make
ensure that the receiver has understood the sender’s ideas clearly.
6 Explain briefly any three semantic barriers to communication.
Answer:
Semantic barriers are the ones that arise due to the problems and hinderances in the
process of encoding and decoding of message into words.
The three types of semantic barriers are described below:
 Badly expressed message: Many a times due to inadequate vocabulary, usage
of wrong words, omission of required words etc. the sender may not be able to
convey the intended meaning to the receiver.
 Faulty translations: Many a times a message has to be translated in an easily
understandable language keeping in view the needs of the receiver. However,
the message may not be conveyed in the desired manner if the translator is not
proficient in both the languages and mistakes may happen which is likely to
change the meaning of messages due to use of inappropriate words.
 Technical jargon: In order to communicate effectively it is important that the
words used are easily understandable by the receiver. However, many a times

it has been observed that the specialists may use technical terminology which
cannot be comprehended by the receivers in the desired manner.
7 Explain briefly any three organisational barriers to communication.
Answer:
Organisation barriers includes the factors related to organisation structure, rules and
regulation, authority responsibility relationships etc. which are likely to hinder the
smooth flow of communication within the organisation. The three types of
organizational barriers are described below:
 Organisational policy: The effectiveness of communications within the
organization is likely to be adversely affected if the organizational policy either
explicitly or implicitly restricts the free flow of communication within the
organization like if an organization is highly centralized.
 Status: The subordinates may not be able to express themselves freely if their
superior being status conscious prefers to maintain a distance with them. This
kind of an attitude of the superior tends to create a psychological distance
between them.
 Organisational facilities: If an organization provides facilities like frequent
meetings, suggestion box, complaint box, social and cultural gathering,
transparency in operations and so on in order to facilitate free flow of
communication it will lead to better management. This approach will foster
smooth, clear and timely communications.
8 Explain briefly any three personal barriers to communication.
Answer:
The personal barriers arise as a result of the personal outlook of both sender and
receiver that may exert influence on effective communication. The three personal
barriers to communication are described below:
 Tear of challenge to authority: At times a superior may tend to withhold or
suppress such communication which he feels is likely to have an adverse affect
on his authority.
 Lack of confidence of superior on his subordinates: A superior is unlikely to
seek any advise from his subordinates if he lacks confidence on their
competencies.
 Unwillingness to communicate: Many a times, a subordinate may withhold any
communication deliberately if he feels its disclosure is likely to affect his/her
interests adversely.
9 Why is it said that directing takes place where ever superior subordinate
relationship exists?
Answer:
In every organisation, directing function is performed by every manager regardless of
the level of management from top executive to supervisor. Therefore, it is said that
directing takes place wherever superior subordinate relations exist .
10 M/s Beta Ltd. deals in consumer goods. It employs 100 workers and 10 operative
managers who give guidance and support to the workers while operating the
machinery. The company has a policy of granting leave as per the requirement of
the workers. Workers 3 H 3 are generally granted leave on festivals and special
occasions. Recently on Puja festival, it received a big order. Workers are keen to
take Puja holidays while management is pressing hard for overtime. This matter
was placed before the Personnel Manager who called the meeting of operative
managers and workers to inform them about the changes in the incentive plan
which states payment of double wages for working overtime and triple wages for
working on holidays. Workers without any pressure voluntarily took limited
holidays and were able to increase their earning by working overtime and on
holidays. During Board of Directors meeting, Personnel Manager was asked to
update the management for achieving higher output, meeting timely supplies
without any confrontation with workers. Personnel Manager replied, “I just used a
carrot with no sticks approach”.
By quoting the lines from above paragraph state any two elements of directing.
Answer:
The two elements of directing being discussed in the above paragraph are outlined
below:
1. Supervision: Supervision is the process of overseeing the work of the
subordinates and giving instructions to ensure optimum utilisation of resources
and achievement of work targets.
Supervision-” it employs 10 operating managers ……………….. support to the
workers.”
2. Motivation: Motivation is the process of stimulating people to action to
accomplish desired goals.
Motivation-“to pay double wages for working overtime and triple wages for
working on holidays”.
11 Describe briefly Maslow’s need hierarchy theory of motivation.
Answer:
The various types of needs that exist in a hierarchy within every human being are
stated below:
 Basic Physiological Needs: These needs are most basic in the hierarchy and are
linked to primary needs like hunger, thirst, shelter etc. These needs of
employees may be fulfilled by providing basic salary and the necessary breaks
to use the washroom and eat food.
 Safety/Security Needs: These needs offer security and protection from physical
and emotional harm. Job security and safe working conditions may be offered
to the employees for the fulfillment of these needs.
 Affiliation/Belonging Needs: These needs refer to affection, sense of
belongingness, acceptance and friendship. By encouraging cooperative
teamwork and by being-an accessible and kind superiors these needs of
employees may be fulfilled.
 Esteem Needs: These include factors such as self-respect, autonomy, status,
recognition and attention. By giving praise and recognition when the employee

does well and offering promotion these needs of the employee may be fulfilled.
 Self Actualisation Needs: It is the highest level of need in the hierarchy. It
refers to
the drive to become what one is capable of becoming. These needs include
growth,
self-fulfilment and achievement of goals. By providing challenging work and
giving them flexibility and autonomy in their jobs, these needs of the
employees may be fulfilled.
12 Prateek is working in a multinational company in Noida. He was running a
temperature for the last many days. When his blood was tested, he was found to be
positive for malaria. He was admitted in a hospital and a blood transfusion was
advised by the doctors as his condition was very serious. One of his colleagues sent
a text message to his superior, Mr. B. Chatterjee. Mr. B. Chatterjee immediately
sent a text message to the employees of the organisation requesting them to
donate blood for Prateek. When the General Manager came to know about it, he
ordered for fumigation in the company premises and cleaning the surroundings.
1. From the above paragraph, quote lines that indicate formal and informal
communication.
2. State any two features of informal communication.
3. Identify any two values that are being communicated to society in the above
case
Answer:
1. Informal communication: “One of his colleagues sent a text message to his
superior, Mr. B. Chatterjee. Mr. B. Chatterjee immediately sent a text message
to the employees of the organisation requesting them to donate blood for
Prateek.”
Formal communication: “When the general manger came to know about it, he
ordered for fumigation in the company premises and cleaning surroundings.”
2. The features of informal communication are as follows:
o The grapevine/ informal communication spreads very fast and sometimes gets
distorted.
o It is very difficult to detect the source of such communication.
3. The two values that are being communicated to the society are:
o Humanity
o Cleanliness
13 Mr. Shubhendu Bose is the owner of Bikmac Enterprises carrying on the business of
manufacturing various kinds of biscuits. There was a lot of discontentment in the
organisation and the targets were not being met. He asked his son, Naval, who had
recently completed his MBA, to find out the reason.
Naval found that all the decision-making of the enterprise were in the hands of his
father. His father didn’t believe in his employees. As a result, both the employer
and the employees were not able to understand each others’ messages in the same
sense. Thus, the employees were not happy and targets were not met.

1. Identify any two communication barriers because of which Bikmac
Enterprises was not able to achieve its target.
2. State one more barrier each of the types identified in (1) above.
Answer:
1. The two communication barriers because of which Bikmac Enterprises was not
able to achieve its targets are:
o Organisational barriers: Organisational Policy
If the organisational policy, is not supportive to free flow of communication, it
may hamper effectiveness of communications. Like in the above case Naval
found that all the decision making power of the organisation was highly
centralised as it was in hands of his father only.
o Psychological barriers: Distrust
Sometimes if there is lack of trust between the parties, they cannot understand
each other’s message in the same sense. Like in the above case Naval found out
that his father didn’t believe in his employees.
2. Organisational barriers:
Status: Sometimes a status conscious manager also may not allow his
subordinates to express their feelings freely. This kind of an attitude may
create psychological distance between him and his subordinates.
Psychological barriers:
Premature evaluation: Sometimes people tend to evaluate the meaning of
message even before the sender completes his message on the basis of their
own judgement, experience etc.
14 Mr. Fernandes is the owner of Unibie Enterprises, carrying on the business of
manufactur¬ing electrical appliances. There is a lot of discontentment in the
organisation and targets are not being met. He asked his son, Michel, who has
recently completed his MBA to find out the reason.
Michel found that all the decision-making of the enterprise were in the hands of his
father. Moreover, his father did not have confidence in the competency of the
employees. Thus, the employees were not happy.
1. Identify any two communication barriers because of which Unibie Enterprise
was not able to achieve its target.
2. State one more barrier each of the types identified in part (1) above.
Answer:
1. The two communication barriers because of which Bikmac Enterprises was not
able to achieve its targets are:
o Organisational barriers: Organisational policy
If the organisational policy, is not supportive to free flow of communication, it
may hamper effectiveness of communications. Like in the above case Michel
found that all the decision making power of the organisation was highly
centralised as it was in hands of his father only.
o Personal barriers:
Lack of confidence of superior in the subordinate: The personal factors of both

sender and receiver may exert influence on effective communication and they
may not be able to understand each other’s message in the same sense. Like in
the above case Michel found out that his father didn’t have confidence in the
competency of the employees.
2. Organisational barriers:
Status: Sometimes a status conscious manager also may not allow his
subordinates to express their feelings freely. This kind of an attitude may
create psychological distance between him and his subordinates.
Personal barriers:
Pear of challenge to authority: If a superior may withhold or suppress the
communication that he may perceive is likely to have an adverse affect on his
authority.
15 Alfa Ltd. was dealing in renewable energy services. To get the business, the team
leader and his team used to travel to different states to give presentations to the
clients. As per the policy of the company, the team leader used to travel by air
whereas his team travelled by road/train. It was not only time-consuming but also
forced the female team members to travel alone at times.
As a result, the subordinates were not acting in a desired manner to achieve the
organisational goals. The CEO of the company came to know about it. He called the
team leader, discussed the matter with him and decided to change the travel policy
of the company. It was decided that in future, all the members including the leader
would travel together and usefully utilise the travelling time in discussion about the
presentation to be given to the clients. This made a positive impact and every
member of the team started acting in a manner as desired by the team leader.
State the features of the element of the function of management used by the CEO.
Answer:
The CEO Alfa Ltd. has used Motivation, which is an element of directing function of
management in order to deal with the situation effectively.
The features of motivation are explained below:
 Motivation is an internal feeling: An urge, drives, or needs of human being,
which are internal, but likely to influence human behaviour.
 Motivation produces goal directed behaviour: A motivated employees is likely
to act in a desired manner and contribute effectively.
 Motivation can be either positive or negative: Positive motivation can be
provided through rewards like increase in pay, promotion, recognition etc.
Negative motivation involves use of negative means like punishment, stopping
increments, threatening etc. which also may prompt a person to act in the
desired way.
16 Samita had been working as an assistant manager with Johnson Enterprises for the
last ten 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 Samita would be promoted. But to
everyone’s surprise, the vacant post was filled by an outsider, Mrs. Rita. Samita felt

demoralised and her performance started declining. She would absent herself often
and could not meet her targets.
Mrs. Rita was a good leader who would not only instruct her subordinates but
would also guide and inspire them. She notices Samita’s behaviour and felt that her
performance could be improved. She started involving Samita in the decision-
making issues related to the organisation and made her a part of a high level joint-
management committee. Samita was now punctual in office and her performance
started improving.
1. Identify the function of management being performed by Mrs. Rita.
2. Name the element of the above function of management which helped Rita
improve Samita’s behaviour.
3. State any three features of the element identified in (2) above.
Answer:
1. Mrs. Rita has performed the directing function of management.
2. Mrs. Rita has been able to improve Samita’s behaviour with the help of
motivation which is an element of directing.
3. The features of motivation are explained below:
o Motivation is an internal feeling: An urge, drives, or needs of human being,
which are internal, but are likely to influence human behaviour.
o Motivation produces goal directed behaviour.
o Motivation can be either positive or negative: Positive motivation can be
provided through rewards like increase in pay, promotion, recognition etc.,
Negative motivation involves use of negative means like punishment, stopping
increments, threatening etc. which also may prompt a person to act in the
desired way.
17 Neeraj, a sales representative of Omida. Ltd. has changed seven jobs in the last one
year. He is a hardworking person but is not able to finalise deals with customers
due to his inadequate vocabulary and omission of needed words. Sometimes, he
uses wrong words because of which the intended meaning is not conveyed. All this
creates a misunderstandings between him and his clients.
1. Identify the communication barrier discussed above.
2. State the category of this communication barrier.
3. Explain any other communication barriers of the same category.
Answer:
1. The communication barrier discussed above is badly expressed message.
2. This kind of barrier falls in the category of semantic barriers.
3. Semantic barriers are concerned with problems and obstructions in the process
of encoding and decoding of message into words or impressions. A few of these
are discussed below:
o Symbols with different meanings: Sometimes, a word may have several
meanings. The communication will be effective only if the receiver perceives it
in the same manner as intended by communicator.
o Faulty translations: Many a times it has been noted that if the translator is not

proficient with both the languages, mistakes may creep in causing different
meanings to the communication.
o Technical jargon: It is usually seen that specialists use technical jargon while
explaining something. If the persons with whom they are communicating are
not specialists in the concerned field, they may not be able to understand the
actual meaning of many such words.
o Body language and gesture decoding: While speaking, one may tend to move
his/her body in a certain manner. If there is no match between what is said and
what is expressed in body movements, communications may be wrongly
perceived by the receiver.
18 Pramod was a supervisor at ‘Annapurna Aata’ factory. The factory was producing
200 quintals of aata every day. His job was to make sure that the work went on
smoothly and there was no interruption in production. He was a good leader who
would give orders only after consulting his subordinates and work-out the policies
with the acceptance of the group.
Identify and describe the leadership style being adopted by Pramod
Answer:
As a supervisor of ‘Annapurna Atta/ Pramod has adopted the democratic style of
leadership.
Democratic leadership is also known as participative leadership. In this type of
leadership style, the members of the group take a more participative role in the
decision-making process.
Everyone is given the opportunity to participate, ideas are exchanged freely, and
discussion is encouraged. It is one of the most effective style of leadership and leads
to higher productivity, better contributions from group members, and increased
group morale.
19 Rahim was working in an enterprise on a 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.
1. By quoting lines from the above paragraph, identify the needs of Rahim that
are satisfied by the offer of the cycle company.
2. Also, explain two other needs of Rahim followed by above that are still to be
satisfied.
Answer:
1. The physiological needs and safety needs of Rahim are being satisfied by the
offer of the company.
2. The other needs of Rahim followed by the physiological needs and safety needs
that still need to be satisfied are as follows:
o Affiliation/Belonging Needs: These needs refer to affection, sense of
belongingness, acceptance and friendship. The organisation, by encouraging
cooperative teamwork and by having accessible and kind superiors, can fulfill

these needs of its employees.
o Esteem Needs: These include factors such as self-respect, autonomy status,
recognition and attention. The organisation,by giving praise and recognition
when the employees do well, and offering promotions, can fulfill these needs
of its employees.
20 Ankur is working as a production manager in an organisation. His subordinate,
Saurabh, discussed with him a method of production which will reduce the cost of
production. But due to some domestic problems and Ankur’s mind being pre-
occupied, he is not in a position to understand the message. Saurabh got
disappointed by this. Identify the factor which acts as communication barrier.
Explain three other factors of the same group of communication barriers.
Answer:
Ankur is not in a position to understand the message due to lack of attention. It is a
type of psychological barrier. The preoccupied mind of the receiver leads to non-
listening of a message which acts as a major psychological barrier. Some of the other
psychological barriers are described below:
 Premature evaluation: Sometimes people tend to evaluate the meaning of a
message on the basis of their own judgement, experience etc., even before the
sender completes his message. This may lead to misinterpretation of the
message.
 Loss by transmission and poor retention: When communication passes
through various levels, successive transmissions of the message result in the
loss of information or transmission of inaccurate information. Also, sometimes
due to poor retention, people cannot retain the information for a long time if
they are inattentive or not interested.
 Distrust: If the communicator and communicator not trust each other, it may
act as a barrier. This is because if they do not believe each other, they may not
understand each other’s message in the desired sense.
21 Rajat, a sales manager, achieved his sales targets one month in advance. This
achievement was displayed on the notice board and a certificate for the best
performance was awarded to him by the CEO of the company.
1. Name the incentive provided to Rajat.
2. Identify the type of incentive.
3. List two other incentives of the type identified in part (2).
Answer:
1. Recognition is the incentive provided to Rajat.
2. It is a type of non-financial incentive.
3. The two other types of non-financial incentives are job security and status.
22 Roshan is the chief chef of ‘Khidmat7 restaurant located in the city of Bangaluru.
The place is known for its exquisite Mughlai cuisine especially mutton biryani and
kababs. All the food is prepared under Roshan’s purview. The various activities in
the kitchen are initiated in accordance to his instructions. He is very clear and
specific in issuing instructions to his subordinates in order to ensure smooth

working of the department. He personally oversees the method followed by the
chefs for preparation of each dish. He misses no opportunity to praise his
subordinates for their good work. All his team members feel very happy and
satisfied under his direction. He provides constant guidance to them in order to
improve upon its taste and presentation and also encourages them to innovate and
be more creative in their work.
In the above context:
1. Identify the various elements of directing mentioned in the above paragraph
by quoting lines from the paragraph.
2. Describe briefly any two points to highlight the importance of directing as a
function of management.
Answer:
1. The various elements of directing mentioned in the above paragraph are as
follows:
o Communication: “He is very clear and specific in issuing instructions to his
subordinates in order to ensure smooth working of the department.”
Supervision-. “He personally oversees the method followed by the chefs for
preparation of each dish.”
o Leadership: “He provides constant guidance to them in order to improve upon
its taste and presentation and also encourages them to innovate and be more
creative in their work.”
o Motivation: “He misses no opportunity to praise his subordinates for their
good work.”
2. The importance of directing as a function of management is described below:
o Initiates action: Directing helps to initiate action by people in the organisation
towards attainment of desired objectives. It is the first execution function of
management.
o Integrates employees’ efforts: Directing seeks to integrate the individual
efforts of employees in the organisation towards the realisation of the
organisational goals.
o Helps to realise their potential: Directing provides effective guidance,
motivation and leadership to the employees so as to enable them to realise
their potential and capabilities, (any two)
23 What is the meaning of the term "motivation'' as an element of directing?
Ans: Motivation refers to a process of inducing and stimulating individuals to behave
in a certain manner to achieve organizational objectives. That is, it refers to
encouraging and urging the employees to perform to the best of their capabilities to
achieve the desired organizational goals. Motivation varies as per the desires and
expectations of the employees and can take various forms such as promotion,
appraisal, and recognition.
24 What is inspiring, guiding, and instructing people in the organization to achieve its
objectives?

Ans: Directing
25 The function of directing is performed by every manager from the top executive
position. Which characteristic of directing is referred to here?
Ans: At every level of management directing takes place
26 It means overseeing the subordinates at work. Which element of directing is
referred to?
Ans: Supervision
27 What makes a Supervisor act as a link between workers and management?
Ans: The supervisor implements the plans formulated by the management by
directing the workers on the one hand and informs the worker's problems to the
management on the other.
28 Give the meaning of "supervision' as an element of directing
Ans: Supervision implies the process of overseeing the subordinates at work, so as to
ensure that the work is being performed as per the requirements of the company
29 State any two non-Financial incentives.
Ans: Two non-Financial incentives are:
 Status: In the organizational context, status means a ranking of positions. A
person with status means a person holding a high position with increased
responsibilities and other benefits.
 Job Enrichment: Job enrichment is concerned with designing jobs that include
a greater variety of work content and require higher knowledge and skill.
30 'K.S. Energy Ltd.’ was an energy-efficient consultancy company. To get the business
the team leader and his team used to travel to different states to give a
presentation to their clients. According to company policy, the group leader used to
travel by plane, and his group traveled by road / train. Not only was it time
consuming but it also sometimes forced the members of the women's group to
travel alone.
As a result, subordinates did not act in the desired way to achieve organizational
goals.
The CEO came to know about it. He called the team leader, discussed the matter
with him, and changed the travel policy of the company. It was decided that all
members including the leader would travel together in the future and would use
the time to talk to subordinates about presentations to be given to the clients. This
made a positive impact and every member of the team started acting in a manner
as desired by the team leader.
Explain the features of the element of the function of management used by the
CEO.
Ans: The management function used by the CEO is “Motivation.
The earlier travel policy of the organization wasn’t appropriate as it required the
leader and members to go on a different transportation medium, and also forced the
women’s group to travel alone, this discourages the employees to work for the
organization.
However, a change in travel policy had a positive impact on employees and they
started acting in a manner desired by the leader, which is possible only with the help
of motivation.
The features of motivation are as follows.
 Motivation is a Psychological Phenomenon: Motivation is an internal feeling such
as urges, drives, and desires which cannot be forced on employees.
 Motivation is a Goal-Oriented Behaviour: It helps people to arrange things in a
particular manner so that they can achieve their goals. A motivated person works
to achieve the goals he or she wants.
 Motivation can be either positive or Negative: Positive motivation means
inspiring people to work better and appreciating a work that is done well e.g., pay
increases promotion recognition. Negative motivation mainly involves threats and
punishment.
 Motivation is a Complex Process: It is a complex and difficult process as there is a
human factor involved. Individuals differ in their needs and wants and human
needs change from time to time.
31 "My Car Ltd. 'has decided to set up its own new automobile factory in a backward
area of West Bengal where very few job opportunities were available. Locals have
welcomed the initiative of "My Car Ltd." The company has also decided to provide
services such as school, hospital, market, etc. to the factory premises so that people
can be attracted to join the factory as workers. 'My Car Ltd." started earning a huge
profit. Another competing company asked its production manager 'Arvind' to
investigate the reasons for the huge profits by My Car Ltd. "Arvind found that in
both companies there is systematic coordination among the various activities to
achieve organizational goals. Every employee knew who was in charge and held
responsible to whom. The only difference was that in his organization
communication took place only through the scalar chain, whereas 'My Car Ltd.' was
allowing the flow of communication in all the areas as needed, which led to faster
dissemination of information and faster response.
(a) Identify the type of organization that permits the flow of communication in all
the directions in 'My Car Ltd.
Ans: In My Car Ltd. Ltd., informal organization allows the flow of communication in all
directions.
(b) Also mention the benefit of the type of organization identified in the area
above. Name any two values 'My Car Ltd.' wanting to connect with the community.
Ans: The benefit of the informal organization are:
 Fulfillment of social needs: An informal organization allows for personal
communication beyond the officially defined roles. This enables the employees
to interact with like-minded colleagues. This unofficial interaction provides a
sense of belongingness among the employees towards one another and
towards the organization.
The two values that 'My Car Ltd." wanted to communicate to society are given below.
a. Fulfilling social responsibility by providing employment opportunities in the
backward area of West Bengal.

b. Working for the benefits of employees by providing services such as school,
hospital, market, etc.
32 Explain any three points that highlight the importance of directing the work of
managers.
Ans: The importance of directing is given below:
 Achieving objectives: The function of directing initiates the actual action in an
organization. Directing helps individuals to complete the assigned task properly
and on time as per the instruction of their superiors.
 Integration of efforts: Every organization comprises several employees who
have different jobs assigned to them and work at different levels. Through
directing, communication and motivation, their efforts get aligned for the
successful achievement of organizational objectives.
 Facilitates change: There are times when the employees are reluctant
regarding the changing policies and structure in the organization, thinking that
the changes are not in their favor, or are very difficult to implement. In this
case, through direction, the management can change the perspective of
employees, by constant communication and motivation regarding the pros and
benefits the change would bring to the organization, as well as to them.
33 "The post of supervisor should be abolished in the hierarchy of managers". Do you
agree? Give any three reasons in support of your answer.
Ans: No, I don't agree, because a supervisor plays an important role in the
achievement of organizational goals, and hence his position should not be abolished.
Functions of the supervisor are:
 Planning the Work: The supervisor is responsible for determining the work
schedule for every job, as well as to allocate the right resources and people to
the right job.
 Providing Guidance: The supervisor constantly provides guidance to the
workers of his department, and motivates them to work to the best of their
abilities so as to achieve the organizational goals. Also, he is responsible for
explaining the policies and programs of the organization to his subordinates
 Ensure Optimum Utilization of Resources: The supervisor makes necessary
arrangements for the physical, and human resources and ensure they are
efficiently utilized.
 Helps in Recruitment: The supervisor also helps the personnel departments in
recruitment and selection of workers. There are situations where the personnel
department takes the suggestions of the supervisor before making the
selection decision.
 Multiple Roles: A supervisor plays multiple roles in an organization, such as of
a:
 Key Man: Because the supervisor supervises the non-managerial
employees who are ultimately responsible for the execution of the plans
 Mediator: The supervisor acts as a link between the management and
workers. He puts forward the suggestions and issues of the workers to the

management, as well as conveys the orders, objectives, policies of the
management to the workers.
 Human Resource Specialist: A supervisor also assists the HR or personnel
department of the organization, and helps them in recruitment and
selection. Also, he provides solutions to the varied problems encountered
by the workers.
34 What are the various types of leadership styles? Explain.
Ans: The various leadership styles are:
 Autocratic or Authoritarian Leader: An autocratic leader gives orders and
expects others to obey them. The decision-making power is centralized. It is
best applied in situations where there is little time for group decision-making or
where the leader is the most intellectual member of the group.
Merits:
a. No delay in decision making as the leader itself makes the decisions, and no
consultations and suggestions are taken by him.
b. The work performed is satisfactory due to constant control of the leader.
Demerits:
a. Employees feel demotivated and discouraged due to the leader's unwillingness
to take their suggestions.
b. The productivity is also impacted due to demotivated employees.
 Democratic or Participative Leader: A democratic leader gives order after
consulting the group and works out the policies with the acceptance of the
group. It is suitable in situations, when the members are skilled and competent.
Merits:
a. There is a sense of cooperation between the leader and the employees, thus
leading to peace and harmony in the organization.
b. There is efficiency in the work performed by the employees.
Demerits:
a. Decisions can be delayed due to differences of opinions between the leader
and employees, or between the employees themselves.
b. This style works well only when the employees are educated, skilled and
competent. In case of the opposite, the productivity and efficiency may get
hampered.
 Laissez-Faire or Free Rein Leader: The followers are given a high degree of
independence to formulate their objectives and ways to achieve them. In this
the leader fully trusts his followers, and gives them complete autonomy to
make decisions.
Merits:
a. The employees are highly motivated due to freedom to make decisions.
b. It leads to overall development of the employees as a sense of self confidence
is inculcated in them to take decisions on their own.
Demerits:
a. There can be a lack of coordination due to no control of the leader on the

employees.
b. It is only suitable when the employees are extremely educated and highly
skilled. If not, there can be issues of lack of coordination, workplace conflicts, lack of
productivity, etc.
35 Explain the term Directing.
Answer:
Directing – Meaning: In the ordinary sense, directing means giving instructions and
guiding people in doing work. In our daily life, we come across many situations-like a
father directing his daughter to do work in organizing a function, a teacher directing
his student to complete an assignment, a film director directing the artists about how
they should act in the film, etc. In all these situations we can observe that directing is
done to achieve some predetermined objective.
36 Explain in brief the elements of the communication process.
Answer:
Elements Of Communication P: Communication has been defined as a process. This
process involves the elements like source, encoding, media/channel, receiver,
decoding, noise, and feedback. The process is represented in the figure below.
Communication Process
The elements involved in the communication process are explained below –

1. Sender: Sender means a person who conveys his thoughts or ideas to the ‘
receiver. The sender represents a source of communication.
2. Message: It is the content of ideas, feelings, suggestions, order, etc. intended to
be communicated.
3. Encoding: It is the process of converting the message into communication
symbols such as words, pictures, gestures, etc.
4. Media: It is The path through which an encoded message is transmitted to the
receiver. The channel may be in written form, face to face, phone call, internet,
etc.
5. Decoding: It is the process of converting encoded symbols of the sender.

6. Receiver: The person who receives communication from the sender.
7. Feedback: It includes all those actions of the receiver indicating that he has
received and understood the message of the sender.
8. Noise: Noise means some obstruction or hindrance to communication.
The hindrance may be caused to sender, message, or receiver. Some examples of
noise are:
(a) Ambiguous symbols that lead to faulty encoding.
(b) A poor telephone connection.
(c) An inattentive receiver.
(d) Faulty decoding (attaching wrong meanings to message)
(e) Prejudices obstructing the poor understanding of the message.
(f) Gestures and postures that may distort the message.
37 Explain in brief the functions of a supervisor.
Answer:
Functions of a supervisor:
The function performed by a supervisor are briefly discussed below –
1. Preparation of Work Schedules: Scheduling involves laying down the time for
starting and completing various activities. The supervisor determines the schedules of
work for every individual in his unit or section. This is done to ensure a steady flow of
work.
2. Improving Communication: The supervisor maintains direct contact with the
subordinates which leads to effective communication. He also provides leadership to
the workers of his department. He fixes production targets for them and provides
them the necessary guidance for doing the work assigned to them.
3. Optimum Utilisation of Resources: The supervisor issues orders and instructions to
the workers for achieving coordination in section. He tells them what to do and how
to do it so that they may utilize machines, materials, money, and methods effectively.
4. Providing Motivation: The supervisor motivates his subordinates by providing
financial and non-financial incentives. He inspires them for higher quality and
productivity.
5. Control of Performance: The supervisor controls the performance of the workers
by comparing their performance with the standards. He takes necessary action to
ensure that goods are produced according to the predetermined standards. He also
provides feedback to the subordinates about their performance and gives them
counseling for improvement.
6. Reporting: The supervisor keeps records of output and other related aspects of
each employee. On the basis of records, he sends performance reports and other
necessary information to his superior.
7. Link Between Management and Workers: The supervisor is an important link
between the management and the workers. He explains management policies to the
workers and also passes on the management’s instructions. He has close contact with
the workers and tries to understand their problems. He brings worker’s problems to
the notice of the top management.

8. Human Relations: A supervisor tends to achieve good human relations in his unit.
He can mix up with the workers and share their joys and sorrows. He also settles
conflicts between workers or groups of workers.
9. Grievance Handling: A supervisor is in direct touch with the workers, so he can
handle their grievances effectively. When a grievance is reported, he listens to the
worker’s viewpoint and tries to remove the cause of grievance. But if he can’t redress
the grievance he should report it to the upper-level management.
38 Differentiate between formal and informal communication.
Answer:
Comparison of Formal and Informal Communication:
Formal Communication Informal Communication
(i) It follows the official chain of (i) It is based on personal relationships and
command. does not follow a fixed pattern.
(ii) It is slow as it has to follow the (ii) It ¡s very fast as it’s not supposed to
path laid down by the management. follow a particular path.
(iii) t is rigid as deviations are not (iii) It is flexible as ¡t moves freely.
allowed.
(iv) Formal communication ¡s (iv) Infonnal message may not be
generally accurate. authentic.
(v) Chances of wrong information are (v) Chances of distortion of information
very few. are very high.
(vi) In the case of formal (vi) In case of informal communication,
communication, the status or position status or position. of the parties has no
of the parties is very important. relevance.
(vii) It serves the needs of the (vii) it serves the social needs of the
organization. members and also of the organization.
39 What is the importance of leadership? Explain.
Answer:
Importance of Leadership:
Leadership is considered the most important element of the directing function of
management. It supports all other managerial functions by assisting in the
formulation and execution of plans. Good leadership provides the following benefits.
1. Clarification of Goals: A leader interprets and explains the objectives of the group
to his followers. As a result, the members of the group know the targets to be
achieved and the contribution, each of them is to make towards common objectives.
They are not likely to go astray and will continue in the right direction.
2. Motivation: A good leader creates- an urge for higher performance among people.
He creates self-confidence and enthusiasm among his subordinates. He converts
lukewarm desire into a burning passion for success. A sound leader can create an
environment conducive to hard work. He directs the potential talent of employees
towards the achievement of goals.
3. Moral Building: A leader builds up dedication and loyalty among a group of people.
He develops mutual cooperation and self-discipline among people. The persons
become ready to sacrifice even their lives for the good of the common goal. Under a
good leader, people work willingly and enthusiastically. The leader encourages
subordinates to take initiative and provides psychological support to them. He serves
as a friend, philosopher, and guide for his group.
4. Teamwork: An organization can be successful only when all its members work
together as a team rather than going in different directions. It is the leader who
creates team spirit and coordination among different members of the group. He
resolves internal conflicts and differences, of opinion. He serves as an arbitrator and
mediator among the members. A leader harmonizes the personal goals and
aspirations of subordinates with the goals of the organization as a whole.
5. Creates dynamic environment: In the dynamic environment of today, frequent
changes are required in the structure and working of an organization. But change
creates uncertainly and inconvenience. Therefore, people tend to resist change. A
good leader persuades people to accept and carry out the desired changes. A leader
is an important agent of organizational change and development. He provides
psychological support to his followers.
6. Representation: A leader serves as the representative of his followers. He protects
their interest and serves as their guardian. He acts as their spokesman and bargains
with the outside forces for the welfare of the groups. A true leader upholds the
interests of his followers and attempts to fulfill their hopes and aspirations. He is
always ready to solve the problems of his followers. A leader manager represents his
organization in business meetings, trade conferences, government committees, and
so on.
Competent leadership is required at all levels of management. All managers must
provide leadership so as to create an urge in the employees to cooperate and
improve their performance towards the achievement of organizational objective
40 Explain the nature and importance of communication in today’s changing business

world.
Answer:
Nature Of Communication:
The foregoing definitions reveal the following characteristics of communication –
1. Pervasive Function: Communication is required at all levels of management and in
all departments of the organization. It is an indispensable part of the management
process. It is an activity of each and every manager. Therefore, communication is
regarded as a pervasive function.
2. Continuous Process: Communication is an ongoing process that has to be in regular
touch with their subordinates and superiors to maintain and improves performance.
3. Two-Way Process: Communication is a two-way process. It includes sending a
message and the response to that message. It is not complete until the reaction or
response to the message is available. The reaction or response is known feedback.
4. Circular Process: Communication becomes a circular process with feedback. The
flow of communication is a circular one.

5. Two or more Parties: It requires at least two persons to complete the process of
the communication-a sender with the message and a receiver who must understand
the message and respond to it.
6. Understanding: The receiver may or may not agree with the point of view of the
sender of the message. However, for communication to be complete, the receiver
must understand the message in the same sense as intended by the sender.
Importance Of Communication:
Communication is an indispensable part of the process of management. Non an
organization can survive and grow without an effective system of communication.
Since the job of a manager is to get things done through others, he has to spend a
major portion of his time on communication. The first executive function is to
develop and maintain a system of communication. Most of the problems of
management arise due to a lack of understanding. Therefore, communication’s the
number one problem of management today:
Sound communication offers the following benefits:
1. Basis of Planning and Decision Making Communication is essential for decision-
making and planning: The quality of managerial depends on the quality of
communication (amount and quality of information available to the organization)
Communication provides the necessary information with the help of which managers
can diagnose problems, evaluate alternative courses of action and choose the right
alternative.
Realistic Planning and sound decision making is not possible without accurate
information through communication, for example, the entire sales plan of an
enterprise may fail if the information about the latest market condition is not
available to management. At the same time, the decisions and plans of management
need to be communicated to the subordinates. Effective communication is also
helpful for the proper implementation of plans and policies of the management.
2. Smooth and Efficient Operation: An effective communication system serves as a
lubricant, fostering the smooth and efficient functioning of the enterprise. The
achievement of goals of the enterprise is of paramount importance and
communication is one of the important tools available to the manager to attain them.
It is through communication that a manager issues orders and instructions and
changes and regulates the behavior of subordinates in the desired direction. Effective
communication promotes managerial efficiency and facilitates leadership.
3. Facilitates Coordination: In every organization, the work to be done is divided
among several interrelated departments and sections. The activities and efforts of
different individuals and groups must be coordinated. Communication is the most
effective means of creating cooperation and coordination. The exchange of ideas and
information helps in bringing about the unity of action in the pursuit of a common
purpose.
Communication binds people together. Group meetings used in coordination involve
the exchange of ideas and knowledge and the transfer of information and
understanding. Communication is at the root of all group activity. It is through

coordination that managers come closer to employees. Interaction and discussion
between the two sides improve the superior-subordinate relationships.
4. Employee Motivation and Moral: Communication helps management to keep the
employees fully informed about the plans, job changes, etc. The motivation and
morale of employees tend to be high when they clearly understand what they are
supposed to do. Sharing of information with employees and discussion with them on
matters of common interest provide satisfaction to employees.
Communication is the means by which employees can bring their suggestions,
difficulties, and grievances to the notice of the management. Upward communication
ensures greater job satisfaction and stimulates worker’s enthusiasm and loyalty
towards the enterprise. Effective communication satisfies the personal and social of
employees.
5. Sound Industrial Relations: Effective communication helps to create mutual
understanding and trust between the employer and the employees. It enables the
management to come into close contact with workers. It serves as a bridge between
management and labor and creates a spirit in the organization. Thus, an effective
communication system is a prerequisite for good labor-management relations.
6. Industrial Democracy: Communication is essential for worker’s participation in
management. It is helpful in the delegation and decentralization of authority.
Effective communication is the basic training and development of managerial
personnel. The process of leadership itself depends upon effective communication.
Public Relations: In the modern business world, every business enterprise must create
and maintain a good corporate image in society. Communication is an indispensable
means of developing a favorable public opinion. It is through communication that
management can keep cordial relations with the government, trade unions,
customers, and the community.
In modem business the role of communications has increased due to the following
reasons:
(a) Increasing size of organizations.
(b) Growing complexities in decision making.
(c) Rapid changes in technology.
(d) Need for better industrial relations.
(e) Growth of trade union movements.
(f) Need to improve public relations,
(g) Increasing Competition.
41 Explain the nature and importance of Motivation.
Answer:
Importance Of Motivation:
The success of an organization to a great extent depends upon the motivation of its
employees. By motivating employees, managers can obtain their best performance
towards the achievement of organizational and individual goals. Motivation is the
core of management due to the following reasons.
1. Higher Efficiency: The level of performance of employees in an organization

depends on their abilities and willingness to work hard. Motivation bridges the gap
between the ability to work and willingness to work. It induces employees to
contribute their maximum efforts to achieve a higher level of performance.
Therefore, motivation helps in increasing production and reducing the cost of
operations.
2. Optimum utilization of Resources: Every organization has physical, financial, and
human resources. Effective utilization of physical and financial resources requires
competent and motivated people. Motivation creates the willingness to work among
employees. It enables managers to achieve the best possible utilization of all
resources.
3. Achievement of Organisational Goals: The objectives of an organization cannot be
realized unless the people working in it are motivated to work hard contribute their
best towards the fulfillment of the assigned tasks. Management can secure the willing
cooperation of subordinates towards the accomplishment of organizational goals by
satisfying their needs through appropriate rewards. Motivated employees fully
cooperate with management in achieving the desired results.
4. Stability in the Workforce: Motivation creates confidence in employees. It helps to
improve their loyalty and commitment towards the organization. As a result, the rates
of labor absenteeism and labor turnover are reduced. This leads to the maintenance
of a stable workforce. The knowledge skills and experience of employees continue to
be available to the organization.
5. Cordial Relations: Motivation brings satisfaction among employees through
monetary and non-monetary rewards. Therefore, it leads to a friendly and supportive
relationship between the employer and employees. Industrial disputes are reduced
and the morale of employees is increased.
6. Facilitates change: Effective motivation helps management in overcoming
resistance to change motivated employees and to support all changes that are in the
interest of the organization. This is because they identify their own progress with the
prosperity of the enterprise.
7. Corporate linage: When the employees of an organization are motivated and
satisfied, the organization makes rapid progress and its reputation improves. Thus,
motivation helps in building a better image of the enterprise. As a result, the
enterprise is able to attract qualified and competent people.
42 Post demonetisation, bank employees have been experiencing hectic long working
hours, which has been highly praised by all. Banks chalked out a compensation plan
for their employees, who have been working long hours like offering compensatory
“off-days” in lieu of holidays on which the employees worked , giving “additional
money” to the employees and so on. Reshma (42), who has been working with a
nationalized bank for seven years, said, ” We have worked tirelessly to meet
customer’s demands,”. Moreover she added that “There were several circulars from
the head office and RBI. We had to go through them thoroughly and adhere to all
the instructions. It is also important to ensure transactions go smoothly and we
solve customer-staff disputes,”

1. Identify the human need of Reshma as per Maslow’s need hierarchy theory
which was affected due to demonitisation.
2. Identify the type of incentives which were provided to the bank employees
for assuming their responsibility diligently.
3. State any two values which the banks are propagating towards their
customers.
Answer:
1. The human need of Reshma as per Maslow’s need hierarchy theory of which
was affected due to demonitisation is described below:
Basis physiological needs: These needs are most basic in the hierarchy and are
linked to primary needs like hunger, thirst, shelter etc.
2. Both monetary and non-monetary incentive were being provided to the bank
employees for assuming their responsibility diligently.
3. The two values which the banks are propagating towards their customers are:
o Customer satisfaction
o Trust
43 Ayesha Ltd. Assured their employees that in spite of recession no worker will be
retrenched from the job.
(i) Name and explain the type of incentive offered to the employees.
(ii) Explain one more incentive of the same category.
Ans. (i) Job security
(ii) Explain one more incentive of the same category.
1. Employee’s recognition.
2. Organizational climate.
44 ABC Ltd. Is not able to achieve its objective on analyzing, they found that employees
were not given their best, so he decided to announce an incentive plain, which
various incentives to employee workers at different level for achieving their target.
(i) Which element of directing is used by manager?
(ii) Suggest incentive suitable for:
1. Employees operating at lower level.
2. Employees operating at higher level.
Ans. (i) Motivation is missing.
(ii) (a) Lower level: offer monetary incentives.
(b) Higher level: non-monetary incentive
45 Is directing required at planning stage? Name the element of directing function
under which:
(i) the superiors oversee the activities of their subordinates.
(ii) the superiors assure the subordinates that their needs will be taken care of.
(iii) the superior attempts to influence the behavior of people at work towards the
realization of specified goals.
(iv) the superior share information with the subordinates in order to reach common
understanding.

Ans. No, directing is not required at planning stage since it is an executive function. It
initiates action in the organization while other functions of management (planning,
organizing, staffing and controlling) just prepare a setting for action.
1. Supervision (ii) Motivation (iii) Leadership (iv) Communication.
46 A behavior study was done on total of 100 employees of an organization. Group A
(of 50 employees) were appreciated by the manager for their work and initiative for
New idea. All these employees were given option of flexible working hours and
were paid wages at a higher piece rate. On the other hand, Group B (of remaining
50 employees) was criticized for their poor performance. Their increments were
stopped and they were paid wages at a lower piece rate.
(a) Identify and explain the feature of motivation highlighted in the above case.
(b) What type of leadership is followed by the manager? Justify your answer.
Ans.
1. Motivation can be either positive or negative. Positive motivation provides positive
rewards like increase in pay, promotion, recognition, etc. Negative motivation uses
negative means like punishment, stopping increments, threatening, etc.
2. Autocratic leadership style.
The leader’s following is based on the assumption that reward or punishment both
can be given depending upon the result
47 Mr. Naresh is working as a Production Manager in Vohra Ltd. His subordinates are
mostly engineers and qualified technicians. As a manager, he is very strict, does not
listen to any suggestions or feedbacks given by his subordinates. He expects them
to following his instructions without any questions and does not allow them to give
suggestions.
1. What leadership style does the manager follow?
2. Is such a leadership style beneficial for the company? Explain.
3. State any one value being overlooked by him?
Ans.
1. Autocratic leadership
2. This leadership style is effective in getting productivity in many situations like in a
factory where the supervisor is responsible for production on time and has to ensure
labour productivity. Quick decision-making is also facilitated.
3. Value overlooked:
● Respect for other’s opinion
● Initiative
48 Gagan has joined as a Managing Director of True Help Ltd., a company engaged in
the business of providing road side assistance to the vehicle owners. He was
previously working in an automobile company. As a part of the joining incentive,
the company has allotted him 400 shares of the company.
1. Identify the type of source of recruitment used by True Help Ltd. to fill up the
post of Managing Director.
2. Identify the type of financial incentive offered to Gagan. Also, state any one other

method that can be used to offer financial incentives to the employees.
Ans.
1. External source of recruitment has been used by True Help Ltd. to fill up the post of
Managing Director.
2. Co-partnership/ Stock option is the type of financial incentive offered to Gagan.
The other method that can be used to offer financial incentives to the employees is
Bonus.
Bonus is an incentive offered over and above the wages/ salary to the employees.
49 Sunidhi has started a designer studio in the basement of her residence after
completing her masters in fashion designing. She has appointed ten employees to
take care of the various aspects of the work. She interacts regularly with each
employee to tell exactly what is expected of him/.her and what he/she needs to do
to be regarded as a good performer. At the same time she allows a free work
environment wherein the employees openly chit chat with each other in order to
fulfil their social and emotional needs. Sometimes, these interactions also lead to
spreading rumours which are not authentic.
1. Name and explain the two types of communication being referred to in the above
paragraph.
2. How does effective communication increases managerial efficiency?
Ans.
1. The two types of communication being referred to in the above paragraph are
formal communication and informal communication.
1. Formal communication: The communication that flows through official channels
designed in the organization structure is called formal communication. This
communication may take place between a subordinate and superior or among same
team employees or managers. Usually a written record of such communications is
maintained, recorded and filed in the office. Formal communication may be further
classified as – Vertical and Horizontal.
2. Informal communication: Informal communication is the type of communication
that takes place without following the formal lines of communication. It is generally
referred to as the ‘grapevine’ because it spreads throughout the organization with its
branches going out in all directions in utter disregard to the levels of authority. The
informal communication arises out of needs of employees to exchange their views,
which cannot be done through formal channels.
2. Effective communication increases managerial efficiency by lubricating the

working
of the entire organization through quick and effective performance of managerial
functions. It enables the management to express the goals and targets, issue
instructions, allocate jobs and responsibilities and look after the performance of
subordinates.
50 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.
1. Needs of Rahim that are satisfied by the offer of cycle company are Physiological
and safety/security needs.
‘The cycle company offered him a permanent pensionable job’.
2. The other needs followed by the above stated needs that are still to be satisfied
are:
1. Affiliation/Belongingness needs: These needs refer to the need for affection, sense
of belonging, acceptance and friendship.
2. Esteem needs: These needs refer to the need for self-respect, autonomy status,
recognition, etc
51 Y Ltd. Is a bank functioning in India. It is planning to diversify into insurance
business. Lately, the government of India has allowed the private sector to gain
entry in the insurance business. Previously, it was the prerogative of LIC and GIC to
do insurance business. But now with liberalization of the economy and to make the
field competitive other companies have been given licences to start insurance
business under the regulation of ‘Insurance regulatory and development Authority’.
Y Ltd. Plans to recruit high quality employees and agents and exercise effective
direction to capture a substantial part of life and non-life insurance business.
1. Identify how the company can supervise its employees and agents effectively.
2. What financial and non-financial incentives can the company use for employees
and agents separately to motivate them?
3. How can the company ensure that higher order needs i.e., esteem and self
actualization as specified by Maslow are met?
4. How can the company follow formal communication system?
5. How can informal communication help to supplement formal communication?
Ans.
1. The company will appoint supervisors who will provide on the job training to the
employees and agents. They will maintain group unity and ensure that the company
gets enough insurance business.
2. To the employees, the company can give pay and allowances, bonus, retirement
benefits, perquisites (e.g., car allowance),recognisation, promotion, job security etc.
to motivate them for higher performance.
To the agents, the company can give the following incentives:
1. Profit sharing
2. Stock option (i.e., giving company’s share at a price less than market price)

3. Productivity linked salary (i.e., higher salary for getting more insurance business)
4. Participation in decision – making.
3. By giving recognition, autonomy status, etc. and providing growth and self-
fulfillment opportunities, the company ensures that higher order needs-esteem and
self actualization needs are met.
4. The company can follow formal communication system by ensuring that all
communication flows through official channels designed in the organization chart
(i.e., through Scalar chain).
5. Information communication network (i.e., grapevine) can be used by the company
to transmit information to know he reactions of the employees and agents to the
company’s decisions and policies. Grapevine channels can carry insurance market
information rapidly.
52 Smita had been working as an assistant manager with ‘Johnson Enterprises’ for the
last ten years. She was very popular amongst her colleagues because of her
commitment and dedication towards the work. When the manager senior to her
retired, all her colleagues thought that now Smita would be promoted. But to
everyone’s surprise the vacant post was filled by an outsider, Mrs. Rita. Smita felt
demoralized and her performance started declining. She would abstain herself
often and could not meet her targets. Mrs. Rita was a good leader, who would not
only instruct her subordinates but would also guide and inspire them. She noticed
Smita’s hebaviour and felt that her performance could be improved. She started
involving Smita in decision making-issues related to the organization and made her
a part of high level joint-management committed. Smita was now punctual in office
and her performance started improving.
1. Identify the function of management being performed by Rita.
2. Name the element of the above function of management which helped Rita to
improve Smita;s behavior.
3. State any three features of the element identified in (ii) above.
Ans.
1. Directing
2. Motivation
3. Features of motivation:
1. Motivation is an internal feeling: The urge, desires, aspirations or needs of people,
which are internal, influence human behavior.
2. Motivation produces goal-directed behavior: For example, if the employee is
interested in promotion, it helps to produce a behavior to improve performance.
3. Motivation can be either positive or negative: Positive motivation provides positive
rewards like increase in pay, promotion, recognition, etc. negative motivation uses
negative means like punishment, stopping increments, threatening, etc.

CHAPTER - 8 CONTROLLING
1 Babita Ltd. is engaged in manufacturing machine components. The target
Production is 250 units per day per worker. The company had been successfully
attaining this target until two months ago. Over the last two months it has been
observed that daily production varies between 200-210 units per worker.
1. Name the function of management and identify the step in the process of this
function which helped in finding out that the actual production of a worker is
less than the set target.
2. To complete the process of the function identified in (a) and to ensure the
performance as per set targets, explain what further steps a manager has to take.
Ans.
1. The management function is Controlling.
“Comparing actual performance with standards” is the step involved in the process
of controlling which helped in finding out that the actual production of a worker is
less than the set target.
2. A manager has to take the following two further steps to complete the process
of controlling:
1. Analysing deviations
2. Taking corrective action
2 Rajeev and Sanjeev are managers in the same organization having different units.
While discussing about the function of management, Rajeev says “Planning is
Looking ahead whereas controlling is looking back.” But Sanjeev says, “Planning
is looking back whereas controlling is looked ahead.” Both are giving reasons in
favour of their statements. Explain the possible reasons given by both and justify
who is correct.
Ans. Rajeev who says, “Planning is looking ahead whereas controlling is looking
back” must be giving the following reason:
Sanjeev who says, “Planning is looking back where as controlling is looking ahead”
must be giving the following reasons.
Conclusion: Planning and controlling are both backward looking and forward
looking functions. Hence, both of them are partially correct
3 ‘Saurashtra’ is a company involved in the export of indigenous food products like
chutneys and pickles.. it has tied up with the small farmers in various states for
sourcing of fruits and vegetables. In this way it helps the small farmers to sell
their produce at reasonable rates. The company follows a practice where only
significant deviations from a budget or plan are brought to the attention of
management. The degree of deviations allowed in different categories in the
budget are well defined in advance, along with the appropriate levels of
managements who will respond to the deviations in question. For example, a
deviation of Rs. 20,000 or more in purchase costs will be reported to the
concerned department manager.
1. Identify the principle of management control adopted by the company. State
the belief underlying this principle.
2. List any two values that the company wants to communicate to the society.
Ans.
1. Management by exception is the principle of management control adopted by
the company. It is based on the belief that ‘if you try to control everything, you
may end up controlling nothing.’
2. The two values that the company wants to communicate to the society are:
1. Rural development:
2. Sense of responsibility:
4 Why it is said that controlling is a continuous activity?
Ans. Controlling is a continuous activity as the progress has to be assessed
continuously as per the pre-determined standards.
5 Why is it said that controlling is looking back?
Ans. Controlling is called a process of looking back as under it, actual results are
compared with the set standards, decided in the past. After that, a corrective
action is initiated.
6 Controlling is a pervasive function’. Explain.
Ans. Controlling is a pervasive function because it is performed:
(i) In all the organisations whether profit making or non-profit making.
(ii) At all levels of management whether top, middle and lower level to ensure that
work at every stage is performed as planned
7 Explain how controlling helps in
(i)Accomplishing organisational goals; and
(ii)Judging accuracy of standards.
Ans. (i) Accomplishing organisational goals The controlling function measures the
performance against the pre-determ ined standards and corrects deviations. This
helps in ensuring that organisation is moving on right track to achieve the
organisational goals. In other words, by controlling, the manager ensures that
resources are obtained and used economically and efficiently for the achievement
of organisational objectives.
(ii) Judging accuracy of standards A sound controlling system helps the
management to verify whether the standards set are accurate and objective. It
keeps a careful check on the changes, which are taking place in the organisation
and helps in revising standards as and when required.
8 Explain how controlling helps in
(i)Making efficient use of resources; and
(ii)Improving employee’s motivation
Ans. (i) 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 pre-determined standards and norms. This ensures that resources are used in
the most effective and efficient manner.
(ii) Improving employees motivation A good control system ensures that
employees knows well in advance what they are expected to do and what are the
standards of performance on the basis of which they will be appraised. Thus, it
motivates them and helps them to give better performance.
9 ’Controlling is forward looking’. Explain.
Ans. Controlling is forward looking as it must focus attention on two things
checking current performance and providing early information to achieve results in
confirmity with set standards. Checking on operations should enable prompt
detection of faults before it is too late for remedy. Deviations, if any, should lead to
investigation of the factors responsible which may effect future operations.
Remedial actions should be followed so as to prevent the occurrence of defects
thereafter. In other words, control must ensure timely detection of deviations and
prevention of their repetition in future.
10 Controlling is looking back’. Give a suitable example in support of your answer.
Ans. Controlling is called a process of looking back as under it/ actual results are
compared with the set standards, decided in the past. After that, a corrective
action is initiated. In other words, if the standards are not decided in the past,
controlling is not possible. Hence, it is true that controlling is backward looking.
For example, a salesman is expected to sell 50 units of a product per week. This is
the standard against which actual performance would be judged at the end of the
week. If he sells 35 units during the week, reasons for shortfall would be
ascertained by his superior.
11 Explain any four points that highlight the importance of controlling.
or
Briefly explain the importance of controlling.
Ans. Importance of controlling are as follows;
(i) Accomplishing organisational goals The controlling function measures the
performance against the pre-determined standards and corrects deviations. This
helps in ensuring that organisation is moving on right track to achieve the
organisational goals. In other words, by controlling, the manager ensures that
resources are obtained and used economically and efficiently for the achievement
of organisational objectives.
(ii) judging accuracy of standards A sound controlling system helps the
management to verify whether the standards set are accurate and objective. It
keeps a careful check on the changes, which are taking place in the organisation
and helps in revising standards as and when required.
(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 pre-determ ined standards and norms. This ensures that resources are used in
the most effective and efficient manner.
(iv)It improves employees’ morale The implementation of controlling makes all the
employees to work with complete dedication because they are aware that their
performance wiil be evaluated and they will have a chance to build their reputation
in the organisation. The employees who show good performance are rewarded by

giving them promotions, cash prizes, etc.
(v)It helps in better performance Planning and controlling are closely inter-related
as the real test of planning is controlling. Control reveals deficiencies and
deviations, suggests corrective actions for prevention of deviations and deficiencies
through modified planning.
(vi) Facilitates coordination Control keeps all activities and efforts within their fixed
boundaries and makes them move towards the set goals. Thus, control facilities
coordination, it provides unity of direction.
12 Alpha Ltd. was manufacturing Auto spare parts. To improve the efficiency of
employees the company provided training to their employees by inviting an
expert who demonstrated the whole process of manufacturing. The expert
quoted that all deviations cannot be controlled, so manager must know which
deviation in key areas must be attended urgently as compared to deviation in
non-key area. He also suggested that human beings
are bound to brake mistakes as manager should not take strict action on every
minute
mistake of workers, rather he can fix a range of deviation and take action if
deviation is
above the specified large.
1. Identify the functions of management referred above.
2. Name the two ways of analyzing deviation mentioned above.
3. Name the method of training used by the company.
4. Identify the value being emphasized in above para.
Ans.
1. Staffing and controlling
2. (i) critical Point Control
(ii) Management by exception
1. Apprenticeship method of training
2. Value of Humanity
13 A critical point control (CPC) approach is followed by McDonald in the cooking
and handling process so that any food safety threat can be prevented,
eliminated, or reduced to an acceptable level. Hence, continuous monitoring of
activities are undertaken to ensure that the process is right at each critical point
control. The main principle followed for cooking at McDonald is “less amount
many time” which can ensure the high quality and high fresh level of the food.
For instance, if your hamburgers have to be made, a worker cannot cook all the
four hamburgers at one time. The time figured out for making one hamburger is
one hundred and forty-five seconds. Moreover, nearly all foods in the McDonald
have the specific holding time, the holding time for hamburgers is ten minutes
and for French fries is seven minutes. If it is not sold within that time it is thrown
away. Also, the temperature of the milk sent by t he supplier must b e under 4 0
c, otherwise, it will be returned.

1. Name the steps involved in the controlling process which is being discussed in
the above lines.
2. What do you understand by ‘critical point control’? Explain.
3. How does the controlling function of management help in accomplishing
organizational goals and ensure efficient use of resources?
Ans.
1. Analyzing deviation and taking corrective action are being discussed in the above
lines.
2. Since it may neither be economical nor easy to monitor each and every activity
in the organization, there for every organization identifies and states its specific
key result area (KRAs) or critical points which require tight control are likely to
have a significant effect on the working of the business. Any deviations on these
points are attended to urgently by the management.
3. The two points that highlight the importance of the controlling function are
listed below:
1. Accomplishing organizational goals:
2. Making efficiently use of resources:
14 Mr. Nath, a recently appointed production manager of Suntech Ltd. has decided
to produce jute bags instead of plastic bags as these are banned by the
government. He set a target of producing 1000 jute bags a day. It was reported
that the employees were not able to achieve the target. Mr. Nath’s behavior is
good towards the employees. His attitude is always positive. So he announced
various incentive schemes for the employees like.
- installing award or certificate for best performance.
- Rewarding an employee for giving valuable suggestions.
- Congratulating the employees for good performance.
(a) Identify the functions of management highlighted in the above paragraph.
(b) State the ‘incentive’ under which the employees are motivated.
(c) State any two values which the production manager wants to communicate to
the society by his work and behavior.
Ans.
1. Controlling and Directing
2. Employee recognition programme (non-monetary incentive)
3. Values:
● Sensitivity to environment
● Good behavior towards employees
● Team work with employees
15 Joseph Bros. was a firm manufacturing jute lamp shades. It uses left over jute
pieces from various jute factories to manufacture economical lamp shades which
are supplied to various hotels in nearby towns: it employs men and women from
nearby villages as workers for creating good lamp shade designs. Joseph Bros., is
not able to meet its targets. Namish, the supervisor of the company, was
told to analyze the reasons for the poor performance. Namish found following

problems and suggested certain solution s in the working of the business. M the
number of workers employed was less than what was required for the work. As a
result, the existing workers were overburdened. The firm decided to search for
new workers and it asked the present employees to introduce candidates or
recommend their friends and relatives to the firm. This enabled the firm in
“putting people to jobs” and assured attainment of objectives according to plans.
1. Identify the functions of management being performed by the firm in the
above situation.
2. Name the concept and its source used by the firm to attract more workers for
the firm.
3. State any two values being followed by Jacob Bros.
Ans.
1. Staffing and Controlling
2. Recruitment, External Source of Recruitment (Recommendations of employees)
3. Values being followed by Joseph Bros.:
1. Creating employment opportunities.
2. Utilizing resources efficiently by using leftover clothes
16 Kothari Sweets is a renowned name for quality sweets since 2000. Adarsh the
owner of Kothari Sweets was worried as the sales had declined during the last
five months. When he enquired from the Sales Manager, the Sales Manager
reported that there were some complaints about the quality of sweets.
Therefore, Adarsh ordered for sample checking of sweets. Identify the step taken
by Harsh that is related to one of the functions of management.
Ans: In the above situation, Harsh is measuring actual performance under the
controlling function of the management.
17 What is the formula for Return on Investment?
Ans: Net Profit / Total investment
18 What do you understand by Key Result Areas( KRAs)?
Ans: The KRA stands for “Key result area”. These are the areas which are critical for
the success of an organization. These are the areas upon which the management’s
attention is needed the most.
19 What should be done while 'taking corrective action' in process of controlling,
when especially in the important areas deviations go beyond the acceptable
range?
Ans: When deviations in important areas go beyond the acceptable range,
immediate managerial attention is required. In this regard, a manager can train,
educate and develop employees so that deviations can be controlled. This will lead
to no or minimum level of deviations.
20 Why planning is an empty exercise without controlling function?
Ans: Planning is an empty exercise without controlling because the successful
implementation of plans and monitoring of plans depend upon the level of
controlling.
21 Which two steps in the process of controlling are concerned with compelling
events to conform to the plan?
Ans: The two steps are:
 Comparison of actual performance with standards.
 Taking corrective actions.
22 If you want to control everything you may end up controlling nothing. Explain.
Ans: Controlling everything will result in controlling nothing, this shows the
concept management by exception that highlights that you cannot control
everything with utmost effectiveness, hence a few exceptions had to be made.
23 The marketing department comes under which type of responsibility center.
Ans: The two examples are:
 Cost Centre
 Revenue center
24 'Planning is looking ahead and controlling is looking back. Comment.
Ans: Planning is looking ahead and controlling is looking back. This statement is
partially true.
 Planning is a mental exercise that helps in deciding what is to be done and
how it is to be done. In other words, planning determines the goals to be
reached and the path of action to be taken. Thus, it is said that planning is
looking ahead as it involves predicting the future course of action.
 Controlling, on the other hand, involves an assessment of past performance
and evaluating them against the set standards. In this sense, control is said
to be a backward-looking function.
 However, both these statements are only partially true. Though planning is a
future-oriented concept, it is still based on past experiences.
25 "1-phone India Ltd." is a manufacturer of the advanced category of mobile
phones. The company trained its engineers from Japan. It markets its mobile
phones domestically as well as internationally. The company had a substantial
market share and had a loyal customer following because of the quality of its i-
phone. From the last financial year, the company had been unable to achieve its
targets because of competition in the market. The company is planning to
revamp its controlling system.
(i) Identify the concepts of management involved in the above para.
Ans: Staffing and Controlling.
(ii) State the steps of the revamped controlling process to be followed by the
company to solve this problem.
Ans: The two steps which must be followed by the company to solve this problem
are:
 Analyzing deviations
 Taking corrective action
(iii) Also, state any one value, which the company wants to communicate to
society.
Ans: Values communicated to the society are :
 Serving society by providing quality products.
 Growth and development of the society.
26 Describe briefly the relationship between controlling and planning.
or
"Planning and Controlling are inseparable twins of management." How?
Ans: Planning and controlling are closely interrelated functions of management.
 Planning is a mental exercise that helps in deciding what is to be done and
how it is to be done. In other words, planning determines the goals to be
reached and the path of action to be taken.
 On the other hand, controlling refers to the process of managing and
evaluating the work done following the standards and taking corrective
measures, if there are any deficiencies. These standards that form the basis
of control are provided by planning.
 Under planning numerous objectives and policies are formed as benchmarks
against which actual performance i
 Controlling without planning is meaningless. There is nothing to control if
there are no standards or objectives.
 That is, if the managers don't know what the end goal is, they don't have a
benchmark against which to measure current performance and
shortcomings.
 Similarly, planning is useless if it is not followed by controlling. Following the
formulation of the plans, it is vital to monitor and evaluate whether the
performance is in accordance with the objectives.
 Hence, planning cannot be carried out if there are no mechanisms for
controlling.
27 A company was manufacturing solar panels for charging mobiles, which were in
great demand. It was found that the target of producing 500 solar panels a day
was not being met by the employees. On analysis, it was found that the workers
were not at fault. Due to the non-availability of raw materials and shortage of
workers, the company was not able to achieve the set targets and alternative
arrangements were needed. To meet the increased demand the company
assessed that approximately 66 additional workers were required out of which 6
would work as heads of different departments and 10 would work as
subordinates under each head. The required qualifications and job specifications
were also enlisted. It was also decided that necessary relaxation should be given
to encourage women, persons from backward and rural areas, and persons with
special abilities to assume responsible positions in the organization. All efforts
were made to match the ability of the applicants with the nature of their work.
a. Identify the functions of management discussed above.
Ans: The functions of management are:
The functions of management listed above are staffing and controlling.
Quote for staffing: “To meet the increased demand the company assessed that
approximately 66 additional workers were required out of which 6 would work as

heads of different departments and 10 would work as subordinates under each
head”.
Quote for controlling:
“It was found that the target of producing 500 solar panels a day was not being
met by the employees. On analysis, it was found that the workers were not at fault.
Due to the non-availability of raw materials and shortage of workers, the company
was not able to achieve the set targets and alternative arrangements were
needed”.
b. State the two steps in the process of each function discussed in the above
para.
Ans:
Steps in Staffing Function
 Estimation of Required Manpower: As a first step, the number of persons
and the kind of persons required in the organization must be estimated
properly. It involves the following two steps:
(i). Workload Analysis: It refers to the number of persons and the kind of
persons required in an organization who will be able to handle the given
amount of workload.
(ii). Workforce Analysis: It refers to estimating the existing number of
persons in the organization.
 Recruitment/Searching: It refers to finding suitable candidates, and inducing
them to apply for the position required by the company.
Steps in Controlling Function
 Comparing Performance: After the actual performance is measured, the
actual performance is compared with the predefined standards.
 Analyzing Deviation: After analysing the actual performance with the set
standards, deviations in performance is identified.
c. List any two values which the company wants to communicate to society.
Ans: Values which the company wants to communicate to society:
 Use of environment-friendly methods of production
 Women empowerment

CHAPTER - 9 FINANCIAL MANAGEMEN
1 Arun is a successful businessman in the paper industry. During his recent visit to his
friend’s place in Mysore, he was fascinated by the exclusive variety of incense sticks
available there. His friend tells him that Mysore region in known as a pioneer in the
activity of Agarbathi manufacturing because it has a natural reserve of forest
products especially Sandalwood to provide for the base material used in
production. Moreover, the suppliers of =other types of raw material needed for
production follow a liberal credit policy and the time
required to manufacture incense sticks is relatively less. Considering the various
factors, Arun decides to venture into this line of business by setting up a
manufacturing unit in Mysore.
1. Identify of the above case:
2. Identify the three factors mentioned in the paragraph which are likely to affect
the working capital requirements of his business.
Ans.
1. Investment decision has been taken by Arun. Investment decision seeks to
determine as to how the firm’s funds are invested in different assets. It helps to
evaluate new investment proposals and select the best option on the basis of
associated risk and return. Investment decision can be long term or short-term. A
long-term investment decision is also called a Capital Budgeting decision
2. The three factors mentioned in the paragraph which are likely to reduce the
working
capital requirements of his business are as follows:
1. Available of raw material:
2. Production cycle:
3. Credit availed:
2 ‘Adwitiya’ is a company enjoying market leadership in the food brands segment. It’s
portfolio includes three categories in the Foods business namely Snack Foods, Juices
and Confectionery. Keeping in the with the growing demand for packaged food it
now plans to introduce ready-To-Eat Foods. Therefore, the company has planned to
undertake investments of nearly Rs. 450 crores for its new line of business. As per
the current financial report, the interest coverage ratio of the company and return
on investment is higher. Moreover, the corporate tax rate is high.
1. As a financial manager of the company, which source of finance will you opt for
debt or equity, to raise the required amount of capital? Explain by giving any two
suitable reasons in support of your answer.
2. Why are the shareholder’s of the company like to gain from the issue of debt by
the company?
Ans.
1. As a financial manager of the company, I will opt for debt to raise the required

amount of capital.
I support my decision by giving the following reasons:
1. Interest coverage ratio:
2. Tax rate:
1. The shareholders of the company are likely to gain from the issue of debt by the
company because the return on investment is higher. It helps a company to take
advantage of trading on equity to increase the earnings per share.
3 Bhuvn inherited a very large area of agricultural land in Haryana after the death
of his grandfather. He plans to sell this piece of land and use the money to set up
a small scale paper factory to manufacture all kinds of stationary items from
recycled paper. Being an amateur in business, he decides to consult his friend
Subhash who works in a financial consultancy firm. Subhash helps him to prepare
a blue print of his future business operations on the basis of sales forecast in next
five years. Based on these estimates, he helps Bhuvan to assess the fixed and
working capital requirements of business.
1. Identify the type of financial service that Subhash has offered to Bhuvan.
2. Briefly state any four points highlighting the importance of the type of financial
service identified in part (a)
Ans.
1. Financial planning is the type of financial service that Subhash has offered to
Bhuvan.
2. The four points highlighting the importance of financial planning are as follows:
1. It ensures smooth running of a business enterprise by ensuring availability of funds
at the right time.
2. It helps in anticipating future requirements of a funds and evading business shocks
and surprises.
3. It facilitates co-ordination among various departments of an enterprise like
marketing and production function, through well-defined policies and procedures.
4. It increases the efficiency of operations by curbing wastage of funds, duplication of
efforts, and gaps in planning.
4 Define financial management.
Ans. According to Weston and Brighan, ‘Financial management is an area of financial
decision-making harmonising individual motives and enterprise’s goals’
5 Wealth maximisation is the primary objective of financial management. Explain.
or
What is meant by financial management? State the primary objective of financial
management.
or
Explain the meaning and objective of financial management.
or
State the objectives of financial management
or

What do you understand by the term ‘financial management’? What is the
objective of financial management?
Ans. Financial management is concerned with optimal procurement as well as the
usage of finance. For optimal procurement, different available sources of finance are
identified and compared in terms of their costs and associated risks.
The primary objective of financial management is to maximise shareholders’ wealth.
This means maximisation of the market value of equity shares. Increase in market
value of shares depends on the financial decisions taken by the firm. Market price of
the shares is the index of the capital invested. If the market price of the shares
increases, it can be said that capital invested by the shareholders has been
appreciating. On the contrary, fall in the market price of the shares has an adverse
effect on their wealth.
The other main objectives of financial management are:
(i) Ensuring availability of funds at reasonable cost.
(ii) Ensuring effective utilisation of funds.
(iii) Ensuring safety of funds by creating reserves and reinvestment of profits.
6 Give the meaning of Investment and financing decisions of financial management.
Ans. Investment decisions It involves careful selection of assets in which funds are to
be invested. Decisions, relating to investment in fixed assets are known as capital
budgeting, whereas those concerning investment in current assets are called working
capital decisions. A business needs to invest funds for setting up new business, for
expansion and modernisation. Investment decision is taken after careful scrutiny of
available alternatives in terms of costs involved and expected return. These decisions
are crucial in nature due to following reasons:
(i) These are long-term decisions and can be reversed only at huge costs.
(ii) These generally involve commitment of huge funds.
(iii) These have a significant effect on the profitability and future of the business.
Financing decisions It is concerned with the decisions of how much funds are to be
raised from which long-term source, i.e. by means of shareholders’ funds or
borrowed funds.
Shareholders’ funds include share capital, reserves and surplus and retained earnings,
whereas borrowed funds include debentures, long-term loans and public deposits.
7 'Reliable Transport Services Ltd.' specializes in transporting fruits and vegetables. It
has a good reputation in the market as it delivers the fruits and vegetables at the
right time and at the right place." State with reason whether the working capital
requirements of 'Reliable Transport Services" will be high or low.
Ans: Reliable Transport Services Ltd.'s working capital requirements will be minimal.
Because fruits and vegetables are perishable by nature, there will be no need to have
a big amount of stock on hand.
8 How do 'Floatation costs" affect the choice of capital structure of a company? State.
Ans: The cost of obtaining cash is known as the flotation cost. The floatation cost for
issuing debt is normally lesser than that of issuing equity, hence in such cases a higher
ratio of debt in the capital structure can be preferred by the companies.

9 What is meant by 'financial management'?
Ans: Financial management encompasses all business activities including the
acquisition and preservation of capital funds in order to achieve a company's financial
demands and overall objectives.
10 Besides the investment decision the finance function is concerned with two other
broad decisions. Name these decisions.
Ans: The decision other than investment decision are:
 Financing Decision: This refers to the decision regarding the amount of finance
to be raised, choosing from the various long term and short term sources of
finance, as well as the decisions regarding choosing the most optimum source
of finance.
 Dividend Decision: A dividend is a portion of a company's profit that is
delivered to stockholders. The stockholders receive current income as a result
of this. The financial choice concerns the distribution of profits to investors
who provided cash to the company. The amount of earnings to be distributed
among the shareholders is the subject of the dividend decision.
 It must be decided that,
 If all profits are to be dispersed,
 Whether all earnings will be retained in the business, or
 Whether a portion of profits will be retained in the business and the remainder
distributed among shareholders.
11 A textile company is diversifying and starting a steel manufacturing plant. State
with reason the effect of diversification on the fixed capital requirements of the
company.
Ans: Due to diversification, the investment will increase thus leading to increased
fixed capital requirements.
12 Rizul Bhattacharya after leaving his job wanted to start a Private Limited Company
with his son. His son was keen that the company may start manufacturing Mobile-
phones with some unique features. Rizul Bhattacharya felt that the mobile phones
are prone to quick obsolescence and a heavy fixed capital investment would be
required regularly in this business. Therefore, he convinced his son to start a
furniture business.
Identify the factor affecting fixed capital requirements, which made Rizul
Bhattacharya choose furniture business over mobile phones.
Ans: "Technology Upgrade” because mobile phones are more prone to get obsolete
due to technology upgradation
13 When can a business use trading on equity to increase the earnings of its
shareholders.
ANS:
When ROI is greater than Rate of interest on debts
14 The size of assets, the profitability and competitiveness are affected by one of the
financial decisions. Name and state the decision.
Ans: Capital budgeting/investment decisions have an impact on asset size,
profitability, and competitiveness.
15 Why does financial risk arise?
Ans: Regardless of whether the company makes a profit, interest on borrowed funds
must be paid. Furthermore, borrowed funds must be repaid after a defined period of
time, and they are subject to a charge on assets. This gives rise to financial risk.
16 Enumerate two objectives of financial management?
Ans: The two objectives of financial management are:
A. Profit Maximization: The primary objective is concerned with the increasing
earning per share (EPS) of the company. It is also the traditional objectives of the
financial management that focuses on the fact that all the financial efforts should be
made to increase the overall profit of the company,
B. Wealth Maximization: This objective focuses on increasing the overall
shareholder wealth of the company, by directing the financing efforts on increasing
the share price of the company. Higher the share price, higher the wealth. The goal of
financial management in this is to optimize the current value of the company's equity
shares.
C. Other Objectives: There can be other objectives such as optimum utilisation of
financial resources, choosing the most appropriate source, ensuring easy availability
of funds at reasonable costs etc
17 Radhika and Vani who are young fashion designers left their job with a famous
fashion designer chain to set-up a company "Fashionate Pvt. Ltd.' They decided to
run a boutique during the day and coaching classes for entrance examinations of
National Institute of Fashion Designing in the evening. For the coaching centre they
hired the first floor of a nearby building. Their major expense was money spent on
photocopying of notes for their students. They thought of buying a photocopier
knowing fully that their scale of operations was not sufficient to make full use of
the photocopier.
In the basement of the building of 'Fashionate Pvt. Ltd.' Praveen and Ramesh were
carrying on a printing and stationery business in the name of 'Neo Prints Pvt. Ltd.'
Radhika approached Praveen with the proposal to buy a photocopier jointly which
could be used by both of them without making separate investment, Praveen
agreed to this.
Identify the factors affecting fixed capital requirements of 'Fashionate Put. Ltd."
Ans: The level of collaboration has an impact on "Fashionate Pvt. Ltd. fixed capital
requirements. Occasionally, business organizations would collaborate and develop
certain facilities together. In such cases, an individual organization's requirement for
fixed capital reduces.
18 What is meant by 'Capital Structure'?
Ans: The term "capital structure" refers to a company's prudent use of debt and
equity. One of the most essential considerations in financial management is the
financing pattern, or the proportion of funds raised from various sources.
19 Name and state the aspect of financial management that enables to foresee the
fund requirements both in terms of "the quantum' and 'in terms of the timings".
Ans: "Financial Planning" is the component of financial management that provides
foresight of fund requirements both in terms of "quantity" and "timings." Financial
planning is creating a blueprint for a company's entire financial operations so that the
appropriate quantity of funds are available for various operations at the appropriate
time.
20 State any four factors which affect the requirements of working capital
requirements of a company.
Ans: Working capital requirements are influenced by the following factors:
A. Nature of Business: A company's basic nature has an impact on the quantity of
working capital it requires. A trading firm, for example, requires less working capital
than a manufacturing organization.
B. Scale of Operations: A large-scale operation will require more inventory since
its working capital requirements are higher than a small-scale operation.
C. Business Cycle: When the economy is booming, more manufacturing is
undertaken, and thus more working capital is required, as opposed to when the
economy is in a slump.
D. Seasonal Factors: Demand for a product will be greater during peak season,
necessitating more working capital than during lean season.
21 'Best Bulbs Pvt. Ltd. was manufacturing good quality LED bulbs and catering to the
local market. The current production of the company is 800 bulbs a day. Sumit, the
marketing manager of the company surveyed the market and decided to supply the
bulbs to five-star-hotels also. He anticipated the higher demand in future and
decided to buy a sophisticated machine to further improve the quality and quantity
of the bulbs produced.
Identify the factors affecting fixed capital requirements of the company.
Ans: The factor determining a company's fixed capital requirements is 'Growth
Prospects’. Higher output, more sales, more inputs, and so on are all related to a
company's expansion and growth. This necessitates the use of more advanced
machinery. As a result, organizations with strong growth potential require more fixed
capital, and vice versa. High growth prospects lead to Large fixed capital
requirements, whereas low growth prospects lead to low fixed capital requirements.
22 Every manager has to take three major decisions while performing the finance
function. Explain them.
Ans: A management must make three main decisions:
A. Financing Decision: This refers to the decision regarding the amount of finance
to be raised, choosing from the various long term and short term sources of finance,
as well as the decisions regarding choosing the most optimum source of finance.
B. Investment Decision: Investment decision refers to the prudent allocation of a
firm's resources among various alternative offers, with the minimum cost, maximum
return.
C. Dividend Decision: Dividend decision is whether to distribute earnings to
shareholders as dividends or to retain earnings to finance long-term projects of the
firm.

23 Explain briefly any four factors that affect the working capital requirement of a
company.
Ans: The different factors that influence a company's working capital requirements
are outlined below.
The effective interest rate that a firm pays on its debts, such as bonds and loans, is
known as the cost of debt.
 Business Type: Companies that provide services or trade (and have a short
operational cycle) require less working capital than companies that
manufacture goods.
The raw materials are generally the same as the final outputs and the sales
transaction takes place immediately in service and trading organization, thus
leading to low working capital requirements.. A manufacturing firm, on the
other hand, has a long operational cycle, and raw resources must be turned
into completed goods before they can be sold, thus leading to large working
capital needs.
Small working capital needs are for service or trading businesses, while
manufacturing companies have a high need for working capital.
 Credit Extends to the Firm's Ability: When a corporation has a generous credit
policy, the number of borrowers grows. This, in turn, raises the company's
working capital requirements. A strict credit strategy, on the other hand,
decreases the need for working capital. Large working capital is required with a
company having a liberal credit policy. Whereas, a strict credit policy leads to
low working capital needs.
 Extent of Availability of Raw Material: If the raw materials required by the
company can be availed easily, then the firm need not maintain a large stock of
inventories of raw material. In such circumstances, the company's working
capital requirements are reduced.
If on the other hand, raw materials aren't readily available or their supply isn't
consistent, the company will need to keep a significant stock of raw materials
on hand to assure uninterrupted operations, necessitating a substantial
amount of working capital. Hence if raw materials are readily available, then
working capital requirements are minimal. But if obtaining raw materials is
difficult then it will result in a high working capital demand.
 Scale of Operations: Companies operating on a large scale require large
working capital. This is due to the fact that such businesses must keep a large
stock of merchandise and debtors. When the scope of operations is limited,
however, the amount of working capital required is lower. Hence, large-scale
operations necessitate a large amount of working capital. Operating on a small
scale necessitates a low level of working capital.
24 The board of Directors has asked you to design the capital structure of the
company. Explain the factors that you would consider while doing so.
Ans: The following seven elements are used to establish a company's capital
structure:-

A. Cash Flow Position: The cash position at the end of the month on a cash flow
statement represents the amount of cash the company has in hand at that point in
time. This cash position reflects the company's financial strength and liquidity,
indicating the company's capacity to satisfy its existing obligations. Hence, a company
with high liquidity and a good cash flow position can issue debt capital, as the
company will have less chances of facing financial risk than the company with a low
cash position.
B. Tax Rate: Higher the tax rate, more preference for debt capital in the capital
structure, as interest on debt capital being a tax deductible expense makes the debt
cheaper.
C. Cost of Debt: Lower the cost of debt, higher will be the preference for debt
capital in the equity share as against equity capital.
D. Control: If the existing shareholders want to maintain the control in the firm,
the company may prefer more debt over equity in the capital structure, as issuing
debt will not affect the control stake of existing shareholders.
E. Stock Market Situations: If the stock market is flourishing, and there is a
condition of boom then the companies may prefer more equity over debt in the
capital structure. However, in the case of a bear market, to avoid any more risks, the
companies will prefer more debt over equity in the capital structure.
F. Return on Investment (ROI): It is a performance metric used to assess an
investment's efficiency or profitability, as well as to compare the efficiency of many
investments. A higher ROI over the rate of interest will make the companies prefer
debt capital because of lower cost and higher returns. While in the case of ROI being
less than rate of interest, equity would be preferred, as in this case debt would be
more costly affair for the company
G. Size of Business: Small businesses generally go for retained earnings, and
equity capital, as if they go for debt or borrowed capital, the company has to face a
fixed interest burden. However in the case of large companies, issuing debt is not a
big issue, and they can raise long term finance from borrowed sources cheaper than
that of small firms.
25 The directors of a company have decided to expand their business activities by
increasing the stock of raw materials and finished goods at an estimated cost of Rs.
50 lakhs. Describe the various ways open to the company to raise necessary finance
for the purpose.
Ans: The company can raise necessary finance for the purpose of expansion through
the following function.
A. Issue of Shares: The technique through which businesses distribute additional
shares to shareholders is known as the issue of shares. Individuals or corporations can
be shareholders. While circulating the shares, the company adheres to the rules set
forth by the Companies Act of 2013. The three major fundamental steps in the
process of issuing shares are the distribution of prospectuses, the receipt of
applications, and the allocation of shares.
B. Issue of Debentures: The term "issuing debentures" refers to the company's

issuance of a certificate under its seal that serves as an acknowledgement of the
company's debt. The process of a firm issuing debentures is similar to that of issuing
shares. A prospectus is published, applications are accepted, and allotment letters are
sent out.
C. Loans from Banks and Financial Institutions: Banks are the main actors in all
areas of the financial markets, including credit, cash, securities, foreign exchange, and
derivatives, due to their vast monetary holdings. The growth of the business sector
determines a country's economic development. By making funds available to
businesses, a well-developed financial system aids their growth.
D. Retained Earnings: Accounting's idea of retained earnings is crucial. The word
refers to a company's previous profits, less whatever dividends it has paid in the past.
The term "retained" refers to the fact that the earnings were not distributed to
shareholders as dividends, but rather were kept by the corporation.
26 Explain briefly any four factors affecting the fixed capital requirements of an
organization.
Ans: Factors affecting an organization's fixed capital requirements include:
A. Nature of Business: the type of business is a factor in determining the fixed
capital requirements. The type of fixed asset used in manufacturing business (namely
plant machinery etc., whereas in trading its merely sale and purchase. For e.g.
manufacturing businesses necessitate a large capital investment in fixed assets such
as plant and machinery etc., whereas trade concerns necessitate a smaller capital
investment in fixed assets.
B. Scale of Operations: A larger organization operating on a large scale requires
more fixed capital investment as compared to an organization operating on a small
scale. Large firm has more people, more products to produce, more land space, thus
fixed expenses increase in terms of salaries, rent, etc.
C. Choice of Technique: An organization using capital-intensive techniques
requires more investment in fixed assets as compared to an organization using labour
intensive techniques. on the other hand the capital intensive as it uses machinery etc
.,which is costly.
D. Technology Upgrade: When compared to other businesses, a company with
obsolete techniques and assets needs to revamp their assets and techniques time and
again.
E. Growth Prospects: In order to expand their production capacity, companies
with stronger growth prospects require larger fixed capital investments.
F. Diversification: If a corporation diversifies, it will need to invest more fixed
capital in plant and machinery, among other things.
G. Alternatives to Outright Buying: A well-developed financial sector might offer
leasing options as an alternative to outright purchase and more of the alternatives
available, lesser the fixed capital required.
H. Collaboration Level: If companies are collaborating, forming a joint venture,
and so forth, then they need less fixed capital as they share plants and machinery
with their collaborators.

27 Silkiya Ltd." is a company manufacturing silk cloth. It has been consistently earning
good profits for many years. This year too, it has been able to generate enough
profits. There is availability of enough cash in the company and good prospects for
growth in future. It is a well-managed organization and believes in quality, equal
employment opportunities and good remuneration practices. It has many
shareholders who prefer to receive a regular income from their investments. It has
taken a loan of more than 60 lakhs from SBI Bank and is bound by certain
restrictions on the payment of dividend according to the terms of the loan
agreement. The above discussion about the company leads to various factors which
decide how much profit should be retained and how much has to be distributed by
the company.
Quoting the lines from the above discussion, identify and explain any four such
factors.
Ans: The choice on dividends has been considered in the question.
The following factors affect the dividend decision, along with their quotations:
A. Stable Earnings: A company's earnings are used to determine the amount of
dividends it will pay out. A company with stable and smooth earnings can pay higher
dividends to shareholders than a company which has unstable and uneven earnings.
Quotation: “It has been consistently earning good profits for many years”.
B.Future Growth Prospects: Companies with better future growth prospects tend to
save more of their earnings for future reinvestment. As a result, they pay lower
dividends.
Quotation: “There is availability of enough cash in the company and good prospects
for growth in future”.
C. Shareholder Preferences: When deciding on dividends, shareholders' preferences
must be taken into account. If shareholders, for example, want a specified minimum
amount of dividends paid, the corporation can proclaim that.
Quotation: “It has many shareholders who prefer to receive a regular income from
their investments.”
D.Legal Restrictions: The extent of dividend payment also depends on the legal
restrictions a company faces from the external environment. The company has to
provide a dividend in accordance with the restrictions and rules and regulations it is
bound in.
Quotation: “It has taken a loan of more than 60 lakhs from SBI Bank and is bound by
certain restrictions on the payment of dividend according to the terms of the loan
agreement.”
28 What is the aim of financial management? State the value that should be kept in
mind while setting the objectives of financial management.
Ans:
wealth maximization of shareholders
Honesty
Social Responsibility
Commitment

29 What is meant by 'Fixed capital'? Describe any four factors which affect the
requirement of fixed capital requirement of a company.
Ans. Fixed capital: investment made in fixed assets is known as fixed captial.it is
usually financed through long term source of finance .
Factors affecting fixed capitals needs are:
1.nature of business
2.scale of operation
3.Growth Prospects
4.Diversification
30 Explain in brief the various steps in financial planning.
Answer:
Following steps should be taken for preparing a financial plan:
1. Determination of Financial Objectives: For the purpose of preparing an effective
financial plan first of all the financial objectives of a firm should be clearly
determined. The financial objectives should be divided into short-term objectives as
well as long-term objectives. The short-term objectives may include maintaining the
liquidity of funds, maintaining the market standing of the firm and proper
maintenance of sales, etc.
On the other hand, the long-term objectives may include the achievement of
maximum efficiency of factors of production at minimum cost and the maximization
of shareholder’s wealth. The objectives should be clearly defined so that they can be
used as guidelines for determining the 1 policies and procedures.
2.Formulation of Financial Policies: The second step in financial planning is the
formulation of financial policies. Financial policies act as guidelines for the f
procurement, allocation, and effective utilization of funds of the organization.
Financial policies are framed by the top management with the advice of the financial
manager. The policies may be regarding capitalization, capital structure, trading on
equity, fixed assets management, working capital management, dividend distribution,
etc.
3. Formulation of Procedures: The policies laid down must be clarified in the form of
detailed procedures. Each subordinate must know what he is required to do.
Procedures are essential to ensure the consistency of actions. In financial procedures,
financial executives decide about the control system, establish the standards of
performance and compare the actual performance with the standards to ascertain
the deviations and their causes. Thereafter, necessary steps are taken to control the
deviations.
4. Provision of Flexibility: The objectives, policies, and procedures laid down as above
constitute the financial plan of a business. Financial planning is a continuous process
and hence there should be proper flexibility in the financial objectives, policies, and
procedures so that these may be revised or thoroughly overhauled according to the
changing circumstances.
31 Define the nature and types of working capital.
Answer:

Along with the fixed capital, almost every business requires working capital though
the extent of working capital requirement differs in different businesses. Working
capital is needed for running the day-to-day business activities. When a business is
started, working capital is needed for purchasing raw materials. The raw’ material is
then converted into finished goods by incurring some additional costs on it.
Now goods are sold. Sales do not convert into cash instantly because there is
invariably some credit sales. Thus, there exists a time, lag between sales of goods and
receipt of cash. During this period, expenses are to be incurred for continuing the*
business operations.
For this purpose working capital is needed, Therefore, sufficient working capital is
needed which shall be involved from the purchase of raw materials to the realization
of cash.
The time period which is required to convert raw materials into finished goods and
then into cash is known as the operation cycle or cash cycle. The need for working
capital can also be explained with the help of the operating cycle.
The operating cycle of a manufacturing concern involves five phases:
1. Conversion of cash into raw material
2. Conversion of raw material into work-in-progress
3. Conversion of work-in-progress into finished goods
4. Conversion of finished goods into debtors by credit sales
5. Conversion of debtors into cash by realizing cash from them.
Thus the operating cycle starts from cash, finishes at cash, and then again restarts
from cash. The need for working capital depends upon the period of the operation
cycle. Greater the period, more will be the need for working capital. The period of
operation cycle in a manufacturing concern is greater than a period of operating cycle
in a trading concern because in trading units cash is directly converted into finished
goods.
Diagram: Operating Cycle (Nature of Working Capital)

Because of the time involved in an operating cycle, there is a need, for working capital
in the form of current assets. Firms have to keep I adequate stock of raw materials to
avoid the risk of non-availability of raw materials. Similarly, the concern must have
adequate stock of finished goods to meet the demand in the market on a continuous
basis and to avoid being out of stock. Concern also has to sell finished goods on credit
due to competition which necessitates the money tied up in debtors. Y and bills
receivables. In addition to all these, concerns have to necessarily keep cash to pay the
manufacturing expenses, etc., and to meet the contingencies.
Permanent and Temporary Working Capital Working Capital in a business is needed
because of the operating cycle.
But the need for working capital does not .come to an end after the cycle is
completed. Since the operating cycle is a continuous process, there remains a need
for a continuous supply of working capital. However, the amount of working capital
required is not constant. throughout the year, but keeps fluctuating.
On the basis of this concept, working capital is classified into two types:
(a) Permanent Working Capital: The need for working capital or current assets
fluctuates from time to time. However, to carry on day-to-day operations of the
business without any obstacles, a certain minimum level of raw- materials, work-in-
progress, finished goods and cash must be maintained on a continuous basis. The
amount needed to maintain current assets on this minimum level is called permanent
or regular working capital. The amount involved as permanent working capital has to
be met from long-term sources of finance, e.g., capital, debentures, long-terms loans,
etc.
(b) Temporary or Variable Working Capital: Any amount over and above the
permanent level of working capital is called temporary, fluctuating, or variable
working capital. Due to seasonal changes, the level of business activities higher than
normal during some months of the year, and therefore, additional working capital will
be required along with the permanent working capital. It is so because during peak
season, demand rises and more stock is to be maintained to meet the demand.
Similarly, the amount of debtors increases due to excessive sales. Additional working
capital thus needed is known as temporary working capital because once the season
is over, the additional demand will be no more.’The need for temporary working
capital should be met from short-term sources of finance, e.g. short-terms loans, etc.
So that it can be refunded when it is not required.
32 Explain the various factors affecting working capital requirements.
Answer:
Factors affecting working capital requirements:
1. Nature of Business: The basic nature of business influences the amount of working
capital required. A trading organization usually needs a lower amount of working
capital compared to a manufacturing organization. This is sales can be effected
immediately upon the receipt of materials, sometimes even before that. In a
manufacturing business, however, raw material needs to, be converted into furnished
goods before any sales become possible. Other factors remaining the same, trading
business requires less working capital. Similarly, service industries that usually don’t
have to maintain inventory require less working capital.
2. Scale of operations: For an organization that operates on a higher scale of
operations, the quantum of inventory, debtors that are required is generally high.

Such organizations, therefore require a large amount of working capital as compared
to the organizations which operate on a lower scale.
3. Business Cycle: Different phases of business cycles affect the requirement of
working capita! by a firm. In case of a boom, the sales, as well as production, are
likely to be higher, and therefore higher amount of working capital is required. As
against this, the requirement for working capital will be lower during the period of
depression as the sales as well as production will below.
4. Seasonal factor: Most businesses have some seasonality in their operations. In
peak season, because of a higher level of activity, a higher amount of working capital
is required. As against this, the level of activity, as well as the requirement for
working capital, will be lower during the lean season.
5. Production Cycle: The production cycle is the time span between the receipt of raw
materials and their conversion into finished goods. Some businesses have a longer
production cycle while some have a shorter one. Duration and the length of the
production cycle affect the number of funds required for raw materials and expenses.
Consequently working capital requirement is higher in firms with longer processing
cycles and lower in firms with shorter processing cycles.
6. 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
creditworthiness of its clientele.
A liberal credit policy results in a higher amount of debtors, increasing the
requirement of working capital.
7. Credit Availed: Just as a firm allows credit to its customers it also may get credit
from its suppliers. To the extent, it avails the credit on its purchases, the working
capital requirement is reduced.
8. Operating Efficiency: Firms manage their operations with varying degrees of
efficiency. For example, a firm managing its raw materials efficiently may be able to
manage with a smaller balance. This is reflected in a higher inventory turnover ratio.
Similarly, a better debtors turnover ratio may be achieved reducing the amount tied
up in receivable. Better sales effort may reduce the average time for which finished
goods inventory is held. Such efficiencies may reduce the level of raw materials,
finished goods, and debtors resulting in the lower requirement of working capital.
9. Availability of raw material: If the raw materials and other required materials are
available freely and continuously, lower stock levels may suffice. If however, raw
materials do not have a record of uninterrupted availability, higher stock levels may
be required. In addition, the time lag between the placement of the order and actual
receipt of the materials (also called lead time) is also relevant. The higher the lead
time, the higher the quantity of material to be stored and the higher is the amount of
working capital requirement.
10. Growth Prospects: If the growth potential of concern is perceived to be higher, it
will require a higher amount of working capital so that it is able to meet higher
production and sales target whenever required.
11. Level of Competition: A higher level of competitiveness may necessitate higher

stocks of finished goods to meet urgent orders from customers. This increases the
working capital requirement. Competition may also force the firm to extend liberal
credit terms.
12. Inflation: With rising prices, higher amounts are required even to maintain a
constant volume of production and sales. The working capital requirement of a
business thus becomes higher with a higher rate of inflation. It must, however, be
noted that an inflation rate of 5%, does not mean that every component of working
capital will change by the same percentage. The actual requirement shall depend
upon the rates of price change of different components (e.g. raw materials,’ labor
cost, finished goods.) as well as their proportion in the total requirement.
33 When is financial leverage considered favorable?
Ans) Financial leverage is considered favourable when return on investment is higher
than the cost of debt
34 The board of Directors has asked you to design the capital structure of the
company. Explain any sin factors that you would consider while doing so. 6
Ans) For design the capital structure of the company six factors are as following:-
1) Cash Flow Position.
2) Interest coverage ration(ICR)
3) Debt Service coverage ratio(DSCR)
4) Return on investment (ROI)
5) Cost of debt
6) Tax rate.
35 state whether the working capital requirements of business manufacturing the
following items are big or small. Justify your statement.
(a) Coolers (c) Sugar (b)bread (d) Locomotives (e) Furniture manufacturing against
orders.
Ans) Requirements of working capital for the mentioned business will be:
(a) Bread Requirements of working capital will be less because it has quick cash
turnover.
(b) Sugar;- working capital required for manufacturers will be more as ration of raw
material cost to total cost is more.
(c) Coolers:- working capital required for manufacturers of cooler will be more
because it is a seasonal product.
(d) Furniture:- Requirements of working capital for a manufacturer of furniture
manufactured against specific order is less as it doesn’t requires large stock.
(e) Motor car;- Requirements of working capital for a manufacturer of locomotives
will be more because gestation period is more.
36 “ A decision to acquire a new and modern plant to upgrade an old one”.
Identify the aspect of financial decision.
Ans) Investment decision (Capital Budgeting).
37 Computer Tech Ltd., is one of the leading information technology outsourcing
services providers in India. The company provides business consultancy and
outsourcing services to its clients. Over the past five years the company has been
paying dividends at high rate to its shareholders. However, this year, although the
earnings of the company are high, its liquidity position is not so good. Moreover,
the company plans to undertake new ventures in order to expand its business.
1. Give any three reasons because of which you think Computer Tech Ltd. has been
paying dividends at high rate to its shareholders over the past five years.
2. Comment upon the likely dividend policy of the company this years by stating
any two rasons in support of your answer.
Ans.
1. Computer Tech Ltd. has been paying dividends at high rate to its shareholders over
the past five years because of the following reasons:
1. Earnings:
2. Cash flow position:
3. Access to capital market:
2. This year the company is likely to follow a conservative dividend policy because of
the following reasons:
1. The cash flow position of the company is not god and dividends are paid in cash.
2. The company may like to retain profits to finance its expansion projects. Retained
profits do not involve any explicit cost and are considered to be the cheapest sourc
of finance
38 ‘Madhur Milan’ is a popular online matrimonial portal. It seeks to provide
personalized match making service. The company has 80 offices in India, and is now
planning to open offices in Singapore, Dubai and Canada to cater to its customers
beyond the country. The company has decided to opt for the sources of equity
capital to raise the required amount of capital.
1. Identify and explain the type of risk which increases with the higher use of debt.
2. Explain briefly any four factors because of which you think the company has
decided to opt for equity capital.
Ans.
1. Financial risk of the company increases with the higher use of debt. This is because
issue of debt involves fixed commitment in terms of payment of interest and
repayment of capital. Financial risk refers to a situation when a company is unable to
meet its fixed financial charges.
2. The factors because of which the company has decided to opt for equity capital are
as follows:
1. Capital market conditions:
2. Fixed operating cost:
3. Cash flow position:
4. Risk:
39 Sunrises Ltd. dealing in readymade garments, is planning to expand its business
operations in order to cater to international market. For this purpose, the company

needs additional 80,00,000 for replacing machines with modern machinery of
higher production capacity. The company wishes to raise the required funds by
issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT
for the previous year of the company was 8,00,000 and total capital investment was
1,00,00,000. Suggest whether issue of debenture would be considered a rational
decision by the company. Give reason to justify your answer. (Ans. No, Cost of Debt
(10%) is more than ROI which is 8%).
A company is able to issue debenture for fund raising when the debt cost is less than
cost of capital.
In this question. Cost of capital of Sunrises Limited is 10% which is 8,00,000 as total
capital is 80,00,000.
Now return on investment is calculated as
ROI = Return / Investment
= 8,00,000/1,00,00,000
=8%
On assuming that the company will be operating on the same efficiency, the
additional investment of 80,00,000 will have a ROI of 8% which will amount to
6,40,000.
The cost of debt will be 8,00,000 which is more than the ROI of 6,40,000. Therefore, it
is advisable for a company not to issue debenture when cost of debt is higher than
cost of capital.
40 Aval Ltd. is engaged in the business of export of canvas goods and bags. In the past,
the performance of the company had been up to the expectations. In line with the
latest demand in the market, the company decided to venture into leather goods
for which it required specialised machinery. For this, the Finance Manager Prabhu
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 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.
a. Identify the financial concept discussed in the above paragraph. Also, state the
objectives to be achieved by the use of financial concept so identified. (Financial
Planning).
b. ‘There is no restriction on payment of dividend by a company’. Comment. (Legal
& Contractual Constraints)
a. The financial concept discussed here is capital budgeting, it is decision regarding
capital investment which will be having an impact on the profitability of the company
in the long term.
The company wants to invest in new machinery which needs investment, this will
have a direct impact on the operations which will result in affecting the profitability of
the organisation.
The following objectives can be achieved:

1. Cash flow: Investment will bring new machinery which will increase the
organisations profitability.
2. Company wants to raise funds from both inside and outside organisation, it will be
helpful to analyse that return generated from such investment will be more than cost
of capital.
3. Investment used: The company is planning to raise funds from both inside and
outside. It is important to know that funds from internal and external sources will
have different rates of interest.
b. Companies pay dividend to shareholders which is a part of the company earnings.
Paying of dividends is based on following factors:
1. Legal Constraint: Legal constraints are such constraints that are mentioned in the
company laws which impact paying out dividends on certain occasions. It should be
followed properly.
2. Contractual Constraints: Pay out of dividend reduces cash in the company. Money
that is raised as loan will put certain restrictions on the company for paying dividends,
such constraints are called contractual constraints.
41 What is working capital? How is it calculated? Discuss five important determinants
of working capital requirement.
Working capital in a business is the surplus that is determined by subtracting current
liabilities from current assets of the organisation. Current assets are those assets that
can be converted into cash or cash equivalent within the current accounting period.
Two broad categories of working capital can be classified:
1. Gross Working Capital
2. Net Working Capital
Gross Working Capital is referred to as the current assets that are present in the
balance sheet of a company.
Net Working Capital is the difference between current assets and current liabilities
present in the balance sheet of an organisation. Net working capital is considered to
be more relevant for capital financing and management.
Working capital is calculated as
Working Capital = Current Assets – Current Liabilities
The following are the determinants of the working capital requirement:

1. Business Type: The nature of business of a firm determines its working capital
requirement. The size and type of operations of an organisation will the extent of
working capital required. For example, firms that offer services will have low working
capital requirement whereas a manufacturing plant will have a large working capital
requirement. The operating cycle of such a firm is more.
2. Scale of operations: The extent of scale of operations is a determining factor for
working capital. A firm having a large scale of operation will see an increase in
working capital requirement as firms have a high requirement of maintaining
inventory. Similarly, a firm having small scale of operations will have a low working
capital requirement.

3. Fluctuations of Business Cycle: The working capital will also vary with the different
phases in which a business is running. During high demand in market there will be
high requirement for production, so working capital will be more whereas in terms of
low demand.
4. Production Cycle: Every industry will have a different production cycle depending
on the type of industry. A firm having a longer production cycle will have a higher
requirement of working capital and firms having short production cycle will have low
working capital requirement.
5. Growth Prospects: Companies that have higher growth prospects and look for
expansion have a higher working capital requirement.
42 Explain the term ''Trading on Equity''. Why, when and how it can be used by a
company?
ANSWER:
Trading on equity refers to a practice of raising the proportion of debt in the capital
structure such that the earnings per share increases. A company resorts to Trading on
Equity when the rate of return on investment is greater than the rate of interest on
the borrowed fund. That is, the company resorts to Trading on Equity in situation of
favourable financial leverage. As the difference between the return on investment
and the rate of interest on debt increases, the earnings per share increase.
The use of Trading on Equity is explained in detail with the help of the following
example.
Suppose there are two situations for a company. In situation I it raises a fund of Rs
5,00,000 through equity capital and in situation II, it raises the same amount through
two sources- Rs 2,00,000 through equity capital and the remaining Rs3,00,000
through borrowings.
Also suppose the tax rate is 30% and the interest on borrowings is 10%. The earnings
per share (EPS) in the two situations is calculated as follows.
Situation I Situation II
Earnings before interest and 1,00,000 1,00,000
tax (EBIT)
Interest 30,000
Earnings Before Tax (EBT) 1,00,000 70,000
Tax 30,000 21,000
Earnings After Tax (EAT) 70,000 79,000
No. Of equity shares 50,000 20,000
Clearly, in the second situation the EPS is greater than in the first situation. In the
second situation the company takes advantage of the Trading on Equity and raises
the EPS. Here, the return on investment calculated
as is 20% while the interest on the borrowings is

10%. Thus, the Trading on Equity is profitable.
However, it should be noted that Trading on Equity is profitable and should be used
only when the return on investment is greater than the interest on borrowed funds.
In case the return on investment is less than the rate of interest to be paid, the
Trading on Equity should be avoided.
Suppose instead of Rs 1,00,000 the company earns just Rs 25,000. In such a case the
EPS are calculated as follows.
Situation I Situation II
Earnings before interest 40,000 40,000
and tax (EBIT)
Interest 10,000
Earnings Before Tax (EBT) 25,000 10,000
Tax 30,000 3,000
Earnings After Tax (EAT) 70,000 7,000
No. Of equity shares 50,000 20,000
Clearly in this case, the EPS in Situation II falls. Here the return on investment is only
8% while the interest on the borrowings is 10%.

Thus, in this situation the Trading on Equity is not favourable and should be
discouraged.
Hence, it can be said that a firm can use Trading on Equity if it is earning high profits
and can increase the EPS by raising more funds through borrowings.
43 Yogesh, a business man is engaged in publishing and selling of Ice-creams. Identify
the working capital requirement of Yogesh giving reason in support of your answer.
Ans.
Working capital requirements of Yogesh would be less as it is a TRADING business
44 Manish is engaged in business of garments manufacturing. Identify the working
capital requirement of Manish giving reason in support of your answer.
Ans.
Working capital requirements of Manish would be less as it is a MANUFACTURING
business. So raw material needs to be converted into finished goods before any
sales can become possible
45 The directors of a manufacturing company are thinking of issuing Rs. 20 crores
worth additional debentures for expansion of their production capacity. This will
lead to n increase in debt equity ratio from 2 : 1 to 3 : 1. What are the risks involved
in it? What factors other than risk do you think the directors should keep in view
before taking the decision? Name any four factors.
Ans. Higher use of debt increases the fixed financial charges of a business because

payment of interest and return of principal amount is compulsory. Any default in
meeting these commitments may force the business to go into liquidation. As a
result, increased use of debt increases the financial risk of a business. Financial risk
is the chance that a firm would fail to meet its payment obligations.
Other factors affecting this decision are:
1. Cost
2. Cash flow position
3. Control
4. Return on investment (ROI)
46 ‘Indian Logistics’ has its own warehousing arrangements at key locations across the
country. Its warehousing services help business firms to reduce their overheads,
increase efficiency and cut down distribution time. State with reason, whether the
working capital requirements of ‘India Logistics’ will be high
or low.
Ans. Low, as it is a service industry, which usually do not have to maintain
inventory.
47 In a company profits are high and in future less scope of expansion exists. The
company has decided to distribute less amount of share of profits to its
shareholders.
1. Identify of share of profits to its shareholders.
2. State any one value which is affected by the company’s decision. (3 Marks)
Ans.
1. Dividend decision
This decision involves how much of the profit earned by the company (after paying
tax) is to be distributed to the shareholder and how much of it should be retained in
the business.
2. Value affected: Shareholders’ wealth will not be maximized
48 Kay Ltd. is a company manufacturing textiles. It has a share capital of ? 60 lakhs. In
the previous year, its earning per share was ? 0.50. For diversification, the company
requires an additional capital of ? 40 lakhs. The company raised funds by issuing
10% debentures for the same. During the year, the company earned a profit of ? 8
lakhs on the capital employed. It paid tax @ 40%.
1. State whether the shareholders gained or lost, in respect of earning per share
on diversification. Show your calculations clearly.
2. Also state any three factors that favour the issue of debentures by the
company as part of its capital structure.
OR
Vivo Ltd. is a company manufacturing textiles. It has a share capital of Rs. 60 lakhs.
The earning per share in the previous year was Rs. 0.50. For diversification, the
company requires an additional capital of Rs. 40 lakhs. The company raised funds by
issuing 10% debentures for the same. During the current year, the company earned
a profit of Rs. 8 lakhs on the capital employed. It paid tax @ 40%.
1. State whether the shareholders gained a lost, in respect of earning per share

on diversification. Show your calculations clearly.
2. Also, state any three factors that favour the issue of debentures by the
company as part of its capital structure.
Answer:
1. Let us presume that the share capital of Rs. 60 lakh is made up of Rs. 6 lakh
equity shares assuming that the face value of each share is Rs.10.
Sources Situation 1 Situation 2
(Amount (in Rs.)) (Amount (in Rs.))
Equity shares 60,00,000 60,00,000
10 % Debentures NIL 40,00,000
Total Capital 60,00,000 1,00,00,000
EBIT — 8,00,000
Less: Interest — – (4,00,000)
EBT — 4,00,000
Less: Tax @ 40% — – (1,60,000)
EAT *3,00,000 2,40,000
No. of shares of Rs. 6,00,000 6,00,000
10 each
EPS 0.50 2,40,000/6,00,000 = 0.40
2. *0.50 x 6,00,000 = 3,00,000
Consequently EBT/EBIT in situation 1 = Rs. 5,00,000
Thus, on diversification, the earning per share fell down from Rs. 0.50 to Rs.
0.40.
3. The three factors that favour the issue of debentures by the company as part of
its capital structure are as follows:
o Tax deductibility: Debt is considered to be a relatively cheaper source of
finance as the amount of interest paid on debt is treated as a tax deductible
expense.
o Flotation cost: The money spent by the company on raising capital through
debentures is less than that spent on equity.
o Control: The issue of debentures doesn’t affect the control of the equity
shareholders over the business as the debenture holders do not have the right
to participate in the management of the business.
49 Wooden Peripheral Pvt. Ltd. is counted among the top furniture companies in Delhi.
It is known for offering innovative designs and high quality furniture at affordable
prices. The company deals in a wide product range of home and office furniture
through its eight showrooms in Delhi. The company is now planning to open five
new showrooms each in Mumbai and Bangalore. In Bangalore it intends to take the
space for the showrooms on lease whereas for opening showrooms in Mumbai, it
has collaborated with a popular home furnishing brand, ‘Creations.’
1. Identify the factors mentioned in the paragraph which are likely to affect the
fixed capital requirements of the business for opening new showrooms both
in Bangalore and Mumbai separately,
2. “With an increase in the investment in fixed assets, there is a commensurate
increase in the working capital requirement.” Explain the statement with
reference to the case above.
Answer:
1. The fixed capital requirements of Wooden Peripheral Pvt. Ltd. for opening new
showrooms in Bangalore will be relatively less as its taking space on lease, so
only rentals have to be paid.
Similarly, its fixed capital requirement for opening showrooms in Mumbai will
be reduced as its going to share the costs with another company through
collaboration.
2. It’s true that,” With an increase in the investment in fixed assets, there is a
commen¬surate increase in the working capital requirement.” Like in the above
case, Wooden Peripheral Pvt. Ltd. is planning to invest in new showrooms.
Consequently, its requirement of working capital will increase as it will need
more money to stock goods, pay electricity bills and salaries to staff. Also, it
intends to take the space for the showrooms in Mumbai on lease so it will have
to pay rentals.
50 After persuing a course in event management, Kajal and her brother Kamal
promoted an event management company under the name Khushi Entertainment
Private Limited. They strive together as dedicated and dynamic professionals
managing different kinds of formal and informal events across all major cities in
India and abroad. They design the event idea and co-ordinate the different aspects
of the event to make it a grand success. As a policy, they take fifty percent of the
payment as advance from the client before the start of an event and receive the
balance charges after the successful completion of the event.
1. Comment upon the working capital needs of the company keeping in mind its
nature of business.
2. Identify the other factor mentioned in the paragraph which is likely to affect
the working capital requirement of their business.
Answer:
1. The working capital requirements of Khushi Entertainment Private Limited will
be relatively less as they are engaged in providing event management services,
wherein there is no need to maintain inventory
2. The other factor mentioned in the paragraph which is likely to affect the
working capital requirement of their business is ‘Credit availed.’ Since as a
policy, they take fifty percent of the payment as advance from the client before
the start of an event, their requirement of working capital is reduced.
51 After completing his education in travel and tourism, Arjun started Travel Angels
Pvt. Ltd. along with his twin brother Bheem. Their company seeks to provide travel
solutions to its clients like ticket booking for airways, railways and road ways, hotel
booking, insurance etc. Although the business is doing well both of them have
realised that they are not good in managing finance, and feel confused and

frustrated sometimes due to financial crises that may suddenly arise. In order to
avoid such situations in the future, they hire Nakul and Sehdev as financial
managers, who have done a degree certification course in financial management.
In context of the above
1. Give the meaning of financial management.
2. Outline the role of Nakul and Sehdev as the financial management team of
the Travel Angels Pvt. Ltd. by giving any four suitable points.
Answer:
1. Financial Management is concerned with optimal procurement as well as usage
of finance.
2. Nakul and Sehdev will play a very important role as the financial management
team of the Travel Angels Pvt. Ltd. in managing the financial health of the
company:
o To determine the capital requirements of business both long-term and short
term.
o To determine the capital structure of the company and determine the sources
from where required capital will be raised keeping in view the risk and return
matrix.
o To ensure efficient management of cash in order to ensure both liquidity and
profitability.
o To exercise overall financial control in order to promote s’afety, profitability
and conservation of funds.
52 Well-being Ltd. is a company engaged in production of organic foods. Presently, it
sells its products through indirect channels of distribution. But, considering the
sudden surge in the demand for organic products, the company is now inclined to
start its online portal for direct marketing. The financial managers of the company
are planning to use debt in order to take advantage of trading on equity. In order to
finance its expansion plans, it is planning to ‘ raise a debt capital of Rs. 40 lakhs
through a loan @ 10% from an industrial bank. The present capital base of the
company comprises of Rs. 9 lakh equity shares of Rs. 10 each. The rate of tax is 30%.
1. What are the two conditions necessary for taking advantage of trading on
equity?
2. Assuming the expected rate of return on investment to be same as it was for
the current year i.e. 15% , do you think the financial managers will be able to
meet their goal. Show your workings clearly.
Answer:
1. The two conditions necessary for taking advantage of trading on equity are :
o The rate of return on investment should be more than the rate of interest.
o The amount of interest paid should be tax deductible.

2.
Sources Situation 1 Situation 2
Amount (in Rs.) Amount (in Rs.)
Equity shares 90,00,000 90,00,000
10 % Debentures NIL 40,00,000
Total Capital 90,00,000 1,30,00,000
EBIT 13,50,000 19,50,000
Less: Interest — – (4,00,000)
EBT 13,50,000 15,50,000
Less: Tax @ 30% – (4,05,000) – (4,65,000)
EAT 9,45,000 10,85,000
No. of shares of Rs. 10 9,00,000 9,00,000
each
EPS 9,45,000/9,00,000 10,85,000/9,00,000
= 1.05 = 1.21
Yes, the financial managers will be able to meet their goal as the projected EPS, with
the issue of debt, is higher than the present EPS.
53 Ramit is using ICR (Interest Coverage Ratio) as the indicator of the interest paying
capacity of his company. However one of his old school days’ friends Shobhit tells
him to use DSCR (Debt Service Coverage Ratio) as the indicator to judge it.
Do you agree with his friend?
Give reason for your answer.
Answer:
Yes, I agree with him.
As it is a better indicator of company’s ability to pay fixed financial charges like
interest because it completes the shortcoming in ICR. ICR is unable to show the
situation of cash balance whereas in DSCR cash profits generated by the operations
are compared with the total cash required for the service of the debt.
ICR is the simple ratio of EBIT/Interest.
54 An AC manufacturing company wants to open a plant in Delhi. The owner of the
company called a meeting to find the experts to fix the plant’s requirements. The
recruitment process of the potential employees who will be working in the plant
will be started soon.
What do you think will be the working capital requirement of this company? Why?
Answer:
The working capital requirement of this company will be high.
The reason for the high requirement of working capital will be that in a
manufacturing company the requirement is high. Further the company will have to
bear inventory costs as for the ACs an inventory will have to be maintained.
55 Identify in the following cases factor affecting the choice of capital:
1. Raj an has an option of taking loan from his relatives. These people have
assured him to give loan at a low interest rate. So he decides to use debt as a
source of financing his project. Now he goes to different relatives and friends
to see if he can get a cheaper source of debt with even lower rate of interest.
2. Prerak Iron Ltd. is thinking of raising finance to further its projects overseas.
For this the company is observing the other companies’ raising of finance.
Their deb^equity ratios are being thoroughly studied by the financial experts
of the company.
3. A company is trying to raise funds after consulting the experts. The owner of
the company has decided to find out the banks which can grant loan under
norms. He will assure that all norms are followed by the company. He has also
decided to gain knowledge about the SEBI guidelines related to public issues of
shares and debentures.
4. The management of a company is very much concerned about the latest
happenings in the stock market. They always w’ant to know whether the
conditions in the stock market are bullish or bearish so that they may know
the feasible time to grow money by issue of shares.
5. A firm has decided not to issue equity this year. The reason they have given is
the involvement of costs like printing charges, brokerage, advertising costs and
underwriter’s commission. The company says all these costs will add on to
become substantial.
6. A company already has high fixed operation costs. If it takes loan its fixed
financial costs will increase leading to an overall increase in payments. Had the
situation been opposite it would have considered taking loan but now the only
option is to go for equity.
7. A company is thinking of taking debt to meet its finance requirements. It is
thinking so because interest is a tax deductible expense. Due to the new
budget by the government raising debt has become comparatively cheaper
and equity is losing its attractiveness.
8. Mr. Madan Sharma has a company having 10 branches throughout the
country. He is thinking of opening a new branch. For this he requires a good
amount of investment. He talks to his friends, banks and other sources to raise
debt as a source of finance. However he prevents himself from using all
possible sources of finance so that he can maintain his borrowing power.
9. A leading company decides to raise fund. It decides to go for debt as the
source of finance. The reason behind this choice is the possibility of losing
management’s holding in the company if equity is issued. The company
already has been using equity as a source of finance during last couple of
years.
10.A company is no more interested in raising funds in the form of debt. The
amount of EBIT that the company has is decreasing in relation to the amount
of interest it has to pay on the debt it has borrowed. If it borrows more of debt
than this ratio EBIT/ Interest will further go down.
11.Neelam has decided to consider debt as the source of raising finance. Her

decision has come after considering the strong buffer of funds she already has.
She has enough amount of funds to cover fixed cash payments. Her business
unit has no problem in running normal business operation and it has low
business risk. Further the financial risk is also low.
12.A company has decided to go for trading on equity as an option. This is being
done to increase the Earning per Share (EPS). Definitely the ability of the
company to use debt is greater.
Answer:
1. Cost of debt
2. Capital structure of other companies
3. Regulatory framework
4. Stock market conditions
5. Floatation costs
6. Risk consideration
7. Tax rate (As with the new budget the tax rate has increased)
8. Flexibility
9. Control
10.Interest Coverage Ratio (ICR)
11.Cash flow position
12.Return on Investment (RoI)
56 Identify the type of decisions:
1. Ravi wants to open a restaurant and is looking for a proper place to open it. He
is also thinking of the amount of funds which will be required for some of the
set ups like food making and storing machineries.
2. Ravindra is running a toy manufacturing company. He thinks of expanding his
business. He meets his uncle and asks him for a sum of Rs. 2 crores. His uncle
asks for a high interest rate. He agrees to it and promises to pay the money
back within 2 years.
3. A leading marketing company has decided to raise money through the stock
market. It issued IPO in the market last year. The company knows there are
going to be sizeable floatation costs involved in it.
4. A company which has 10 branches in the city has decided to open its 11th
branch. The company has taken this branch on rent. In this way the company
has saved money which it would otherwise have invested in purchasing it.
5. A company has decided to plough back the money in the form of retained
earnings. This decision will save the company at least ‘50 crores. These funds
can be used for the long term growth of the business.
6. ‘Rakesh Iron Works’ has been doing a great job in the area of manufacturing
iron. Within two years the company has reached among the top 3 performers
of the 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.
7. Raj an Powerlooms, a leading company in its industry has decided not to issue
equity shares this year as they want to keep the management control in their

own hands. The company’s management already has only 60% shares in the
company. So it would avoid any further dilution of its stake in the company.
Company would prefer taking loan.
8. A company has decided to issue debentures as it knows that it will not lead to
any additional costs. These debentures will be carrying a very low rate of
return for the debenture holders but will be a surety for them to get their
money back. Investors who want financial safety would like to go for this
option as there will be an assured definite return. ,
9. Shuddhi Steel Manufacturers has been a brand but due to some HR related
issues it came into limelight for bad reasons. The issue was related with non-
payment of salaries of the employees but now the company wants to sort this
issue out. The company has decided to pay the salary of all the employees
which were not paid their emoluments since last six months. The company has
done so to avoid any image spoiling to take place.
10.A soft drink company has decided to run an advertisement campaign. It will
hire many famous Bollywood celebrities for this purpose. The advertisement
campaign could involve more than ‘150 crores. Every major newspaper is
mentioning about it.
11.Tarachand and Sons has decided to open a new branch in the middle of the
city in order to increase its business.
Answer:
1. Investment decision
2. Financing decision
4. Investment decision (short-term investment decision/working capital)
5. Dividend decision (As out of the EPS one portion will be dividend and the other
retained earnings. This is decided by dividend decision).
6. Dividend decision
9. Investment decision (Working capital or short term investment decision)
10.Investment decision (Long-term investment decision. Remember running an ad
campaign is not a short term investment decision which confuses the students.
It is a long-term investment decision)
11.Investment decision (Long-term investment decision)
57 Identify the factors involved in the following dividend decisions:
1. A company is growing by leaps and bounds. Every year it is opening new
branches in the major cities of the country. There are chances that in a few
years to come it will be the market leader in its industry. Newspapers
appreciate the steps taken by the management. However in the field of
financial decisions the company takes a defensive stand. Every year it declares
less than expected dividend for the shareholders.
2. The new government in accordance with its new policy has decided to levy

more taxes on dividends. A company which pays good dividend every year to
its shareholders has decided to keep the retained earnings high this year. This
step will definitely bring the dividend down in comparison to the expectations
of the shareholders.
3. ‘Mitra, my neighbour’ is a real estate company. The company has always done
well on the stock market indices. Recently the company has shown good profit
but it is still short of cash. The company has decided to come with a lower
dividend than expected. (d) One of the leading companies of the services
sector has decided to keep the dividend portion of the EPS stable. The decision
has been taken keeping in view the fact that the earning potential of the
company has not gone up since last three years. So, the company has decided
not to change the dividend per share.
4. A lending company ‘A’ has decided to put some constraints on the company ‘B’
to which it has extended loan. The constraints are related to the declaring of
dividends by the company ‘B’. They have signed a contract which puts
restrictions on company ‘B’. So unless and until it pays back the amount taken
from company ‘A’ it can’t enjoy freedom in this regard.
5. A leading telecom giant always gives good dividend to its shareholders. The
company is a great performer on the stock exchange. The shareholders are
very confident of its good performance. It has the liberty to give high dividends
as it has less dependency on retained earnings.
6. A company takes care of the needs of its shareholders. Many of the
shareholders are such who need a constant and stable source of income. Their
dependence is met by the declaring of a stable and permanent dividend.
Unlike other companies w’hich let the market decide the amount of dividend
to be paid and the payment of which is based on the company’s performance
the company wants to keep its shareholders satisfied majority of whom are
retired persons.
7. ‘Heartbeat Denim’ is the number one performing jeans manufacturing
company since last 30 years. The company has several branches at different
locations of the world. The revenue of the company has increased over the
years. This has made this company a very stable firm. It is on the stock market
since last 15 years. The shareholders of the company are extremely satisfied
with its dividend policy. They never feel insecure about the dividends given as
the company’s products always sell in the market and have a great demand.
8. A newly formed petrochemical company is performing absolutely great. The
firm has listed itself on the stock market. Due to the huge revenue earned by
the organisation it has been able to give high dividend to the shareholders.
9. A company has decided to improve its image in the stock market and wants
the investors to pump more money in its shares. The highly ambitious
organisation has planned to increase the dividends on its shares for the third
successive year. The increase has also been substantial. The idea is to send
great news in the market regarding the performance of the company in order

to bolster its image.
Answer:
The factors involved in the above mentioned dividend decisions are:
1. Growth opportunities.
2. Taxation policy.
3. Cash flow position.
4. Stability of dividends.
5. Contractual constraints.
6. Access to capital market.
7. Shareholder’s preference.
8. Stability of earnings.
9. Amount of earnings.
10.Stock market reaction.

CHAPTER - 10 FINANCIAL MARKETS
1 Supriya’s grandmother who was unwell, called her and gave her a gift packet.
Supriya opened the packet and saw many crumpled share certificates inside. Her
grandmother told her that they had been left behind by her late grandfather.
As no trading is now done in physical form, Supriya wants to know the process by
Adopting which she is in a position to deal with these certificates.
1. Identify and state the process.
2. Also give two reasons to Supriya
3. why dealing with shares in physical form had been stopped.
Ans.
1. Dematerialization – It is a process where securities held by the investor in
physical form are cancelled and the investor gives an electronic entry or number
so that she/he can hold it as an electronic balance in an account
2. Problems with dealing in physical form - (any two)
1. Theft
2. Fake/forged transfers
3. Transfer delays
4. Paper work associated with share certificates or debentures held in physical
form.
2 The directors of a company want to modernize its plant and machinery by making
a public issue of shares. They wish to approach the stock exchange, while the
finance manager prefers to approach a consultant for the new public issue of
shares. Advise the directors whether to approach the stock exchange or a
consultant for new public issue of shares and why. Also advise them about
different methods which the company may adopt for the new public issue of
shares.
Ans. The directors should approach a consultant for new public issue of shares. The
stock exchanges deal with sale and purchase of existing securities only, not in new
issue of securities.
Different methods which the company may adopt for the new public issue of
shares:
1. Offer through prospectus
2. Offer for sale
3. Private placement
4. Rights issue
5. E-IPOs
3 Saqib Ltd. is a large credit worthy company operating in the Kashmir Valley. It is
an export oriented unit, dealing in exclusive embroidered shawls. The floods in
the valley have created many problems for the company. Many craftsmen and
workers have been dislocated and raw material has been destroyed. The firm is
therefore, unable to get an uninterrupted supply or raw material, and the
duration of the production cycle has also increased. To add to the problems of
the organization, the suppliers of raw material who were earlier selling on credit
are asking the company, for advance payment or cash payment on delivery. The
company is facing a liquidity crisis. The CEO of the company feels that taking a
bank loan is the only option with the company to meet its short term
shortage of cash. As a finance manager of the company name and explain the
alternative to bank borrowing that the company can use to resolve the crisis.
Ans. Commercial Paper: It is a short term unsecured promissory note, negotiable
and transferable by endorsement and delivery with a fixed maturity period. It is
issued by large and creditworthy companies to raise short term funds at low
companies that are generally considered to be financially strong.
4 Distinguish between the primary market and secondary market on any four basis:
Ans :
basis Primary market Secondary market
Sale of Sale of securities by ownership of existing securities
securities new companies to the is exchanged between
investor directly. investors.
Capital It contributes directly Contributes indirectly in capital
formation for capital formation formation
Determination Price of securities is Prices of securities is fixed by the
of price fixed by the demand and supply factors of
management of the stock exchange market.
company
location No fixed geographical It is located at fixed place.
location.
5 Define financial markets.Explain any four functions of financial markets
Ans : correct meaning.
Functions”:
i) Mobilisation of saving and channelling them into the most productive uses
ii) Facilitate price discovery
iii)Provide liquidity to financial assets
iv)Reduces the cost of transaction
6 Reshu’s father has gifted her shares of a large cement company, with which he
had been working. The securities were in physical form. She already has a bank
account and does not possess any other forms of securities. She wished to sell
the shares and approached a registered broker for the purpose. Mention
one mandatory detail which she will have to provide with the broker.
Ans. Permanent account Number (PAN)
7 ‘Ganesh Steel Ltd.’ is a large and credit-worthy company manufacturing steel for
the Indian market. It now wants to cate to the Asian market and decides to invest
in new hi-tech machines. Since the investment is large, it requires long-term
finance. It decides to raise funds by issuing equity shares. The issue of equity
shares involves huge floatation cost. To meet the expenses of floatation
cost the company decides to tap the money market.
1. Name and explain the money-market instrument the company can use for the
above purpose.
2. What is the duration for which the company can get funds through this
instrument?
3. State any other purpose for which this instrument can be used.
Ans.
1. Commercial paper
2. 15 days to one year
3. It can also be used for seasonal and working capital needs.
8 The Trading Procedure on Stock Exchange has been replaced by on-line screen
based electronic trading system. This is mainly done to eliminate problems like
theft, fake/forged transfers, transfer delays and paper work associated with
share certificates or debentures in physical form. This is a process where
securities held by the investor in the physical form are cancelled and the investor
is given an electronic entry or number so that he/she can hold it as an electronic
balance in an account. This has increased the equity cult among the people.
1. Identify and state the process mentioned above.
2. What is the most important requirement for the process identified in (a)?
State.
3. State any two values which you think have enhanced the equity cult in the
society.
Ans.
1. Dematerialization – It is the process of holding securities in an electronic form.
2. For this, the investors has to open a ‘Demat account’ with a depository
participant (DP) for holding and transferring securities in the demat form. He /
She will also have to open a bank account for cash transactions in the securities
market.
3. Values:
● Fair dealings (i.e., no danger of loss, theft or forgery of share certificates)
● Transparency (i.e., participants can see the prices of all securities during real
time)
● Increased efficiency of information (i.e., computer screens displays information
on prices)
● Increased efficiency of operations (i.e., reduction in time, cost and risk error) (any
two)
9 Mr. Vikas Mehra was the Chairman of IBM Bank. The bank was earning good
profits. Shareholders were happy as the bank was paying regular dividends. The
market price of their shares was also steadily rising. The bank was about to
announce the taking over of ‘UK Bank’. Mr. Vikas Mehra knew that the share
price of IBM Bank would rise on this announcement. Being a part of the bank, he
was not allowed to buy shares of the bank. He called one of his rich friends
Mukand and asked him to invest Rs. 4 crores in the shares of his bank promising

him the capital gains. As expected, after the announcement, the share prices
went up by 50% and the market price of Mukand’s shares was now Rs. 6 crores.
Mukand earned a profit of Rs. 2 crores. He gave Rs. 1 crore to Vikas Mehra and
kept Rs. 1 crore with him. On regular inspection and by conducting enquiries of
the brokers involved, the Securities and Exchange Board of India (SEBI) was able
to detect this irregularity. SEBI imposed a heavy penalty o Vikas Mehra.
Quoting lines from the above paragraph, identify and state any two function
performed by the SEBI in the above case.
Ans. The two functions performed by SEBI in the given case are stated below:
1. Regulatory function is being performed by SEBI: “on regular inspection and
conducting inquiries of the brokers involved.”
2. Protective function is performed by SEBI: “The SEBI imposed heavy penalty on
Mr. Vikas Mehra.
10 Mission Coach Ltd. is a large creditworthy company that manufactures coaches
for the Indian Railways. It now wants to export these coaches to other countries
and decides to invest in new hi-tech machines. Since the investment is large, it
requires long-term finance. It decides to raise funds by issuing equity shares. The
issue of equity shares involves huge floatation cost. To meet the expenses of
floatation cost, the company decides to tap the money market.
1. Name the explain the money-market instrument the company can use for the
above purpose.
2. What is the duration for which the company can get funds through this
instrument?
3. State any other purpose for which this instrument can be used.
Ans.
1. Commercial Papers can be used for Bridge financing by Mission coach Ltd. as it is
issued by large and credit worthy companies. The instrument is in the form of an
unsecured promissory note and it freely transferable by endorsement. It is sold at
discount and redeemed at par.
2. It maturity period may range from a fortnight to a year.
3. It is also used to meet the short term seasonal and working capital requirements
of a business enterprise.
11 Financial markets facilitate easy purchase and sale of financial assets. Which
function of financial markets is highlighted here?
Ans
Provide liquidity to financial assets
12 What is a money market? Explain any three money market instruments.
ANS: Money market is a market for short term funds dealing in monetary assets
whose maturity period is up to one year.
Call Money-to maintain CRR banks borrow from each other for 1-15 days.
T-Bills in form of promissory notes maturing in less than 1 year. Issued by RBI.
Minimum denomination 25000. Also known as zero coupon bonds
Commercial Bills: trade bills and accommodation bills

Commercial Papers: unsecured, negotiable promissory note for 15days to 1 year,
issued by large creditworthy companies for bridge financing ie to meet floatation
cost of raising long term funds from capital market
Certificate of deposits: short term, unsecured, negotiable instruments in bearer
form issued by developmental financial institutions and commercial banks,
individuals and companies and corporations. These are issued during periods of
tight liquidity, when the deposit growth of banks is slow but demand for credit is
high, helps mobilise large funds for short term requirements
13 Explain the procedure of trading in the stock Exchange.
Ans. Few years back trading on a stock exchange took place through a system of
auction or public outcry. But at present the trading is conducted through a
computer at the broker’s office.
Trading in stock exchange involves the following steps:
1. Selection of brokers: the first step is to select the broker who will buy
and sell the securities on behalf of the investor. A broker can be an
individual, corporate body or partnership firm.
2. Openings demat account: A demand account through which share
certificates and money are transferred in case of sale or purchase of
securities.
3. Placing order: After openings demat account the investor specifies the
number and type of securities that he want to purchase or sell.
4. Execution of order: According to the instruction of investor the broker
buys or sells the securities.
5. Settlement: the transaction on a stock exchange is carried out either
on cash basis or on a carryover basis. The carry over basis is known as
‘badla’.
14 The directors of a company want to modernize its plant and machinery by making
a public issue of shares. They wish to approach the stock exchange, while the
finance manager prefers to approach a consultant for the new public issue of
shares. Advise the director whether to approach the stock exchange or a
consultant for new public issue of shares and why. Also advise them about
shares.
Ans. The director should approach a consultant for new public issue of shares. The
stock exchange deals with sale and purchase of existing securities only, not in new
issue of securities. Different methods which the company may adopt for the new
public issue of shares:
Offer through prospectus.
1. Offer for sale
2. Private placement
3. Rights issue
4. E-IPOs
15 Give the meaning of secondary market.

Ans. Secondary market refers to market for sale and purchase of previously issued
securities. It is also known as stock exchange.
16 Give the meaning of money-market.
Ans. Money-market refers to market for short-term funds, which deals in monetary
assets whose period of maturity is upto one year.
17 State the essential function of primary market.
Ans. The important function of a primary market is to facilitate the transfer of
investible funds from savers to entrepreneurs, seeking to establish new
enterprises.
18 What is meant by capital market?
Ans. Capital market refers to whole network of organisations, institutions through
which medium and long-term funds, both debt and equity are raised and invested.
19 What is meant by ‘primary market’?
Ans. Primary market is the market where securities are being issued for the first
time. Therefore, it is also known as ‘New Issue Market’ (NIM).
20 Give the meaning of the following money market instruments
(i)Certificate of deposit; and
(ii)Commercial bill
Ans. (i) Certificate of deposit These are short-term, unsecured, negotiable
instruments in bearer form.They are issued by commercial banks or development
financial institution to individuals, corporations and companies. These are issued
generally in times of tight liquidity when the deposit growth of banks is slow but
the demand for credit is high, to mobilise large amounts of money for short
periods.
(ii) Commercial bill A commercial bill is a bill of exchange used to finance the
working capital requirements of business firms. It is a short-term negotiable, self
liquidating instrument, whijch is used to finance the credit sale of the firms. When
goods are sold on credit, seller draws the bill of exchange on the buyer. On being
accepted by the buyer, it becomes a trade bill, which is a marketable instrument.
On being discounted from the bank, the trade bill becomes the commercial bill.
21 Give the meaning of the following money market instruments
(i)Treasury bill; and
(ii)Call money
Ans. (i) Treasury bill Also known as zero coupon bond, an T-Bill is issued by RBI on
behalf of Central Government to meet its short-term requirement of funds It is
issued in form of promissory note.
They are highly liquid and have negligible risk. They are issued at discount and
redeemed at par, e.g. 91 days, treasury bill of face value of ? 1,00,000 is purchased
at ? 96,000 and at the maturity investor gets ? 1,00,000, ? 4000 being the interest
received by him.
(ii) Call money Call money is a short-term finance repayable on demand, with a
maturity of 1 to 15 days. It is used for inter bank transactions. Banks have to
maintain a minimum cash balance known as Cash Reserve Ratio. RBI changes this
ratio from time to time.
Call money is a method by which banks borrow from each other to be able to
maintain Cash Reserve Ratio. The interest paid on call money loans is called
call rate, which is vary volatile and changes even from hour to hour.
22 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 these important factions:
(i) Mobilisation of savings and channeling them into the most productive uses A
financial market facilitates the transfer of savings from savers to investors. Thus, it
will help in channelising surplus funds into the most productive uses.
(ii)Facilitating price discovery Interaction between supplier and investor helps to
establish a price for the financial asset which is being traded in that market.
(iii) Providing liquidity to financial assets Financial market facilitates easy purchase
and sales of financial assets. In doing so, they provide liquidity which means these
assets are converted into cash whenever required.
23 What is meant by primary market? Explain any two methods of floating new
issues in the primary market.
Ans. Primary market is the market where securities are being issued for the first
time. Therefore, it is also known as ‘New Issue Market’ (NIM).
Methods of floatation are as follows:
(i) Offer through prospectus Under this method, company issues a prospectus to
inform and attract general public. In prospectus, company provides details about
the purpose for which funds are being raised, past financial performance of the
company, background and future prospects of company.
(ii) e-IPOs It is the new method of issuing securities through online system of stock
exchange. In this, company has to appoint registered brokers for the purpose of
accepting applications and placing orders. The issuer company has to apply for
listing of its securities and the leading manager coordinates all the activities of
these issues through various intermediaries.
24 Nature of money market can be well explained with the help of its features.
State any three such features of money market.
Ans. The features of the money market are: (Any three)
(i) Instruments Money market raises funds by wide variety of short-term securities
such as call money, treasury bills, trade bills, commercial paper, certificate of
deposit, etc.
(ii) Duration Money market provides funds for a period of less than one year.
(iii) Participant The participants in the money market are large institutional
investors such as Reserve Bank of India (RBI), commercial banks, financial
institutions, non-banking finance companies, state government, large corporate

houses, etc.
(iv)Investment outlay Investment in money market entails huge sum of money as
the instruments are quite expensive.
(v)Liquidity Money market instruments enjoy a high degree of liquidity as there is a
formal arrangement for it. The Discount Finance House of India (DFHI) has been
established for the specific objective of providing a ready market for money market
instruments.
(vi)Expected return The expected rate of return of the money market is generally
low as money is invested for a short duration.
25 Financial market plays an important role in the allocation of scarce resources in
an economy by performing many important functions. Explain any four such
functions.
or
Explain any three functions of financial market.
or
Explain any four functions of financial market.
or
What is meant by financial market? Explain any two functions of financial
market.
or
Describe any four functions of financial market..
Ans. Meaning of financial market It is a link between the savers and the
borrowers. This market transfers money or capital from those who have surplus
money to those who are in need of money.
The functions of financial market are:
(i) Facilitating price discovery In the financial market, households are suppliers of
funds and business firms represent the demand. The interaction between them
helps to establish a price for the financial asset which is being traded in that
particular market.
(ii)Provides liquidity to financial assets The investors can invest their money,
wherever they desire, in securities through the medium of financial market and
convert them into cash by selling their financial assets through the mechanism of
financial market.
(iii)Reduce the cost of transactions Financial market provides complete
information regarding price, availability and cost of various financial securities. So,
investors and companies do not have to spend much on getting this information.
(iv)Mobilisation of savings and channelising them into most productive
uses A financial market facilitates the transfer of savings from savers to investors.
It gives savers a wide choice of making investments and thus, channelise surplus
funds into productive uses.
26 Sika Ltd., a reputed industrial machines manufacturer, needs Rupees twenty
crores as additional capital to expand the business. Mr. Amit Joshi, the Chief
Executive Officer (CEO) of the company wants to raise funds through equity. The

Finance Manager, Mr. Narinder Singh, suggested that the shares may be sold to
the investing public through intermediaries, as the same will be less expensive.
Name the method through which the company decided to raise additional
capital.
Ans: The method through which the company decided to raise additional capital is
'Offer for Sale'
27 The Return on Investment (ROI) of a company ranges between 10-12% 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 reasons in support
of your answer, Also state the concept being used in taking the decision.
Ans: Option A is better than Option B for the company to finance its future fixed
capital needs.
Reason: In Option A, Rate of return on investment (10-12%) which is greater than
the Rate of interest on borrowings (9%), Whereas in option B the cost surpasses
the rate of return.
Concept used: Trading on equity
Trading on equity is a financial process in which debt produces gain for
shareholders of a company. Trading on equity happens when a company incurs
new debt using bonds, loans, bonds or preferred stock. Company usually go this
way to boost earning per share
28 The director of a newly established company having paid up equity share capital
of 25 crores desires to get its shares traded at all India Level Stock exchange. As
finance Manager of the company, Suggest the name of the stock exchange for the
purpose. Give any 3 reasons in support of your answer.
Ans: The company's stock should be listed on Over-The Counter Exchange of India
(OTCEI). The main features of OTCEl are the following-
 Nation-wide listing: When you list on one exchange, you can transact with
all of the counters in the country.
 Exclusive list of firms: On the OTCEI, only companies with an issued capital
of $30 million or more are listed.
 Investor registration: Every investor who transacts on the OTCEI is required
to get himself registered.
 Transparency in transactions: The investor is present at all times during the
transaction. On the computer screen, the rates of purchasing and selling may
be viewed, increasing openness in the activities..
29 State the protective functions of Securities and Exchange Board of India.
Ans: The Securities and Exchange Board of India's protective functions include:
 Fraud: One of SEBI's main goals is to prevent insider trading and other types
of fraud. Rules violations and non-compliance with the Companies Act.
 Information: SEBI offers investors with the information they need about

companies.
 Guidelines: The Securities and Exchange Board of India (SEBI) publishes
guidelines for investing in securities. It allows investors to make well-
informed judgments in this way.
 Code of conduct: SEBI provides a code of conduct for the trade practices of
various intermediaries such as brokers and merchant bankers. It monitors
these intermediaries' operations and provides them with a competitive
environment.
30 Mr. Aditya Gupta was the chairman of 'Bandhan Bank'. The Bank was earning
good profits. Shareholders were happy as the bank was paying regular dividends.
The market price of their shares was also steadily rising. The bank announced its
takeover of "Karur Bank'. Aditya Gupta knew that the share price of Vandan Bank
would rise on this announcement. Being a part of the bank, he was not allowed
to buy shares of the bank. He called one of his rich friends Nimesh and asked him
to invest Rs 6 crores in the shares of his bank, promising him the capital gain.
As expected, the share prices went up by 40% and the market price of Nimesh's
shares was now Rs 8.4 crores. He had earned a profit of Rs 2.4crores. He gave Rs
1.2 crore to Mr. Aditya Gupta and kept Rs1.2 crore with him. On regular
inspection and by conducting enquiries of the brokers involved, Securities and
Exchange Board of India (SEBI) was able to detect this irregularity. SEBI imposed a
heavy penalty on Aditya Gupta. By quoting the lines from the above para identify
and state any two functions that were performed by SEBI in the above case.
Ans: SEBI's two functions in this scenario are as follows:
 Regulatory Functions: It monitors and regulates the Indian capital and
securities market while ensuring to protect the interests of the investors,
formulating regulations and guidelines.
 Protective Functions: SEBI is primarily set up to protect the interests of
investors in the securities market.
The following are the lines from the paragraph that show the functions that were
done.
 Regulatory Functions: 'On regular inspection and by conducting enquiries of
the brokers involved'
 Protective Functions: 'SEBI imposed a heavy penalty on Aditya Gupta'
31 These days, the development of a country is also judged by its system of
transferring finance from the sector where it is in surplus to the sector where it is
needed most. To give strength to the economy, SEBI is undertaking measures to
develop the capital market. In addition to this there is another market in which
unsecured and short-term debt instruments are actively traded everyday. These
markets together help the savers and investors in directing the available funds
into their most productive investment opportunity.
(a) Name the function being performed by the market in the above case.
Ans: Allocative function
(b) Also, explain briefly three other functions performed by this market.

Ans: Functions performed by Financial Markets
a. Establishes the price: It provides a platform for the interaction of the
demand and the supply of funds, thereby helping in determining the price of the
asset being traded.
b. Facilitates liquidity: By trading (sale and purchase of assets) in the financial
market, it provides liquidity to the assets, allowing them to be easily changed into
cash or cash equivalents.
c. Reduces the cost of transaction: It provides useful information about the
various securities that are traded.. As a result, it aids in the reduction of transaction
costs in terms of time, effort, and money for both buyers and sellers.
32 State any four functions of "Secondary Market'.
Ans: The four functions of the secondary market are enlisted below.
 Provide liquidity and marketability: The secondary market's primary
function is to provide liquidity and marketability to existing financial assets
and securities. It provides a ready-to-trade platform for existing securities.
 Valuation of securities: It allows for consistent valuation of securities and
aids in the development of demand and supply. It aids in the determination
of the price of securities.
 Security: It provides transaction security and fairness. Transactions can be
entered into at any time, and the market allows for active trading so that
there can be immediate purchase or selling with no fraud.
 Contributes to economic growth: It gives a platform for putting funds to the
best possible use. It helps the economy's growth and development in this
way.
33 State any four functions of "Stock Exchange.'
Ans: The term "stock exchange" refers to a market where existing securities are
bought and sold. The major functions of a stock exchange are as follows.
a. Provides Liquidity and Marketability: Stock exchange provides a ready
platform for trading of existing securities. To put it another way, it acts as a
continuous market for the sale and acquisition of securities. Securities can be easily
turned into cash at any time through the stock exchange. Long-term securities can
also be changed into medium-term and short-term securities via the stock
exchange.
b. Price Determination: A stock exchange assists in determining the price of
monetary assets traded in the market. It provides a platform for buyers and sellers
of securities to communicate, assisting in the determination of security prices
through the forces of supply and demand.
c. Aids Economic Growth: Securities are constantly bought and exchanged on a
Stock Exchange. This continual cycle of disinvestment and reinvestment aids in
directing savings and investments to the most profitable uses possible. This boosts
capital formation and economic growth as well.
d. Speculation Capacity: It is widely assumed that some level of speculation is
required for improved liquidity and to keep demand and supply of securities in

balance. Within the confines of the law, the stock exchange allows for a reasonable
and limited amount of speculation.
34 These days, the development of a country is also judged by its system of
transferring finance from the sector where it is in surplus to the sector where it is
needed the most. To give strength to the economy, SEBI is undertaking measures
to develop the capital market. In addition to this, there is another market in
which unsecured and short-term debt instruments are actively traded everyday.
These markets together help the savers and investors in directing the available
funds into their most productive investment opportunity.
(a) Name the function being performed by the market in the above case.
Ans: The Allocative function is the function that the market performs.
(b) Name the market segment other than the capital market segment in which
unsecured and short-term debt instruments are traded. Also, give any three
points of difference between the two.
Ans: The Money Market is a market segment other than the capital market in
which unsecured and short-term debt instruments are exchanged.
The three points of difference between the two are as follows:
Basis of Capital Market Money Market
Difference
Time span of Capital market mainly deals in The money market is
securities the trading of medium and long- concerned with the trading of
term securities where the short-term securities with
maturity period is more than 1 maturities ranging from one
year. day to one year.
Liquidity Capital market securities are The securities exchanged are
liquid in nature as they are quite liquid.
tradable on the stock exchange,
but are less liquid in comparison
to the money market.
Returns Expected returns are higher due Due to the shorter term,
expected to the possibility of the capital expected returns are lower.
gains and the long term and
regular dividend or bonus.
Instruments Instruments traded in capital Instruments traded in the
market comprise of equity money market kam price of
share, preference share, treasury bills, commercial bills,
debenture, bonds and other certificate of deposits and
long-term securities. other short term securities.
35 Distinguish between money market and capital market:
Ans:
Basis Money Market Capital Market
Participants The participants are RBI, financial The participants are financial
institutions, banks, corporate. institutions, Banks, corporate,
foreign investor and retail
investor.
Instruments Instruments traded are treasury Instruments traded are share,
bills, commercial paper, debenture and bonds.
certificates of deposit call money
and commercial bills.
Safety Money market securities are Money market instruments
comparatively safer. are less risky than capital
market securities.
Expected Money market securities yield Generally yield higher return
returns comparatively less returns. then money market
instruments.
36 The director of a company wants to modernize its plants and machinery by
making a public issue of Shares. They wish to approach the stock exchange, while
the finance manager prefers to approach a consultant for the new public issue of
shares. Advise the directors whether to approach the stock exchange or a
consultant for new public issue of shares and why? Also advise about the
shares.
Ans: Because the company wishes to undertake a new public issue of shares to
upgrade its plants and machinery, the directors should approach the consultant for
the new public issue of shares. It is because the company wants to issue new
shares, and in the stock exchange only existing securities are traded.
The techniques that the corporation may use for the fresh public offering of shares
are as follows:
a. Right Issue: Because the corporation looks to be an established company
seeking to modernize its plant and machinery, it is required by statute to offer
these shares first to current shareholders in proportion to their ownership. If
existing shareholders do not want to take these shares, the corporation can use the
additional procedures listed below.
b. Public Offer via Prospectus: After issuing a prospectus, the corporation can
directly offer its shares to the general public.
c. Offer for sale: In this situation, an intermediary purchases all of the
company's shares at a predetermined price and resells them to investors at a
higher price.
d. Private Placement: in this situation, an intermediary purchases the
company's shares but only sells them to a select few.
37 “Money market is essentially a market for short-term funds’. In the light of this
statement state any three features of money market.
Answer:
The three features of money market are described below:
 It is a market for short term funds whose maturity period is upto one year.
 The main participants are institutional investors.

 Since the cost of securities may be high, investment in the money market
requires huge capital outlay.
38 “Unicon Securities Pvt. Ltd” was established to deal in securities. It was
registered as a stock broker with National Stock Exchange (NSE) and Bombay
Stock Exchange (BSE) to trade in securities listed at these exchanges. It is also a
depository participant with CDSL and NSDL. In the first three years, it developed
its business successfully. After that the composition of Board of Directors
changed. Some customers complained to the customer care centre of the
company that shares purchased by them and for which the payment has been
duly made, were not transferred to their D’mat Accounts by “Unicon securities
Pvt. Ltd” . The executive of customer care centre promised the aggrieved
customers that their shares will be transferred to their respective D’mat Accounts
very soon. But the company delayed the matter and didn’t transfer the shares of
the customers to their D’mat Accounts. This eroded investors confidence and
multiplied, their grievances.
1. Identify the step of trading procedure in a stock exchange which has not
been followed by “Unicon Securities Pvt. Ltd” .
2. Name the Apex statutory body of capital market to whom customer can
complain to redress their grievances.
3. Write two values not followed by Unicon Security Pvt. Ltd.
Answer:
1. The step of trading procedure in a stock exchange which has not been
followed by “Unicon Securities Pvt. Ltd” is settlement i.e. the delivery of
shares through the D’mat Account of the broker to D’mat account of the
investors.
2. The Securities and Exchange Board of India (SEBI) is the Apex statutory body
of capital market to whom customer can complain to redress their
grievances.
3. The two values not followed by Unicon Security Pvt. Ltd are’:
o Truthfulness
o Fair practices
39 Make Good Technologies Ltd. is one of the top suppliers of security software
products and solutions in India with a market share of over 20% in the retail
segment. Its customers includes people all sections of the society i.e. both
households and corporates. Its unique threat detection system works to detect
security threats including virus attacks in real time to protect users’ IT assets
across varied platforms and devices. The company has an established track
record of growth and financial performance. At present the company operates
only through its website. The company now intends to launch a range of
computer accessories and plans to market it by opening its own retail outlets. So,
the board of directors of the company have decided to only raise capital for the
first time through an issue of shares, but at the same time they do not wish to get
into the hassles of launching a public issue of shares.

1. Name and explain the way through which the company can raise finance by
allotting securities to selective individuals and institutions only.
2. Can the company also raise capital through a right issue? Why or why not?
Give a reason to justify your answer.
Answer:
1. The company can raise finance by allotting securities to selective individuals
and institutions only through Private Placement. It is a relatively economical
way of raising money as it helps to save time, cost and money involved in the
process of issuing securities.
2. No, the company cannot raise capital through a right issue as it is issuing
securities for the first time. A rights issue is a pre-emptive right given only to
the existing shareholders to subscribe to the securities of the company as
per its terms and conditions.
40 After doing a course in online trading, Arsh started an online portal for stock
trading under the name ‘Investment Guru’. He met his school friend Ajay after a
long time in a bank where Ajay had come to open a D-Mat account. Arsh urged
Ajay to invest in the forthcoming IPO of a blue chip companies whereas Ajay was
inclined to buy existing securities of the other companies to build his investment
portfolio.
1. Identify the two different types of capital market being referred to by
quoting lines from the para.
2. State any four differences between the two different types of capital
markets as identified in part (1).
Answer:
1. The two different types of capital market being referred to are-
o Primary Market: “Arsh urged Ajay to invest in the forthcoming IPO of a blue
chip companies.”
o Secondary Market: “Ajay was inclined to buy existing securities of the other
companies to build his investment portfolio.”
2. Differences between Primary Market and Secondary Market:
S. No BASIS PRIMARY MARKET SECONDARY MARKET
1. Meaning It is the new issue It is the market for old
market. securities.
2. Aspects Only buying of securities Both buying and selling
takes place. of securities takes place.
3. Price Prices of the securities Prices of the securities
are determined by the are determined by the
company. forces of demand and
supply.
4. Parties It involves dealings It involves dealings
involved between the company between the two
and investors investors.
41 During navratras ,Varun finalises a deal to buy a new house. So, he visits a nearby
branch of ‘Subh Bank’ to withdraw Rs. 10 lakhs from his account in order to pay
the token money to the seller. In the bank he observes that a large number of
customers are present to make cash with drawls, probably because it is an
auspicious time to make purchases. After sometime, he overhearsone of the
bank staff members telling his colleague that, “Today ‘Subh Bank’ is likely to fall
short of cash and to make up for the deficit and maintain its cash reserve ratio it
will have to approach another bank.”
1. Identify the instrument that ‘Subh Bank’ will use to meet its short term
requirements of funds.
2. State any three feature of the instrument as identified in part (1).
Answer:
1. Call money is the instrument used by ‘Subh Bank’ to meet its short term
requirements of funds.
2. Three features of call money are as follows:
o Call money is an instrument through which one bank may borrow money
from another bank to maintain the cash reserve ratio as per the guidelines of
RBI.
o Its maturity period may be from a single day to a fortnight.
o The rate at which the interest is paid on call money is called call rate.
42 Mention, in brief, the classification of the financial market?
Answer:
Classification of financial market
Financial Market
Financial Markets are classified on the basis of the maturity of financial

instruments traded ‘in them. Instruments with a maturity of less than one year are
traded in the money market. Instruments with longer maturity are traded in the
capital market.
43 Explain the meaning of the stock-market Index?
Answer:
Stock Market Index: A stock market index is a barometer of market behavior. It
measures overall sentiment through a set of stocks that are representative of the
market. It reflects the market direction and indicates day-to-day fluctuations in

stock prices. An ideal index must represent a change in the prices of securities and
reflect price movements of typical share for better market representation. In the
Indian markets, the BSE SENSEX and NSE NIFTY are important indices. Some
important global stock market indices are:
 Dow Jones Industrial Average is among the oldest quoted stock market index
in the US.
 NASDAQ composite index is the market capitalization weights of prices for a
stock listed in the NASDAQ Stock Market.
 S and P 500 index is made up of the 500 biggest publicly traded companies in
the US. The S and P 500 is often treated as a proxy for the US stock market.
 FISE 100 consists of the largest 100 companies by full market value listed on
the London Stock Exchange. The FISE 100 is the benchmark index of the
European market.

CHAPTER 11 MARKETING MANAGEMENT
1 It is important that the goods must be available to the consumers at the right
time, right place and in the right quantity.
(a.) Name and explain the concerned element of marketing mix.
(b.) Explain the various components of this element
Ans : (a.) Physical distribution- handling and movement of goods, place of
production to place of distribution.
(b.) Transportation, warehousing, inventory control and order processing with
proper explanations.
2 Name the important function of giving a name, sign or symbol to a product. Also
highlight its various characteristics for success.
Ans:
Branding
Characteristics of a good branding:
(i.) Short and easy to recognize, spell or understand.
(ii.) Suggest the product benefits and qualities.
(iii.) Distinctive and capable of being registered.
(iv.) Versatile with staying power.
(v.) Adaptable to packaging and labeling requirements.
3 You don’t close a sale, you open a relationship, if you want to build up a long
term successful enterprise. Identify the promotional tool used by the marketer.
State two features of this communication tool.
Ans:
Personal selling
Features:
(i.) Direct face to face dialogue.
(ii.) Immediate feedback and flexibility
4 Identify the marketing concepts used:
(i.) Identify needs and wants and fill them.
(ii.) Create products and sell them.
(iii.) Earn profit through volume.
(iv.) Trading of herbal products with due care of the environment.
(v.) Introduction of silver wash technology in Samsung washing machines.
Ans: (i.) Marketing
(ii.) Selling
(iii.) Production
(iv.) Societal
(v.) Product
5 Identify the sales promotion techniques used:
(i.) Limited period offer of 10,000 on all models of Maruti.
(ii.) 1 GB memory card, back case and tamper glass free with purchase of any
mobile.
(iii.) Selling of free sachets of recently launched shampoo brand.
(iv.) 3 up front and 9 post dated cheques @ 0% interest.
(v.) 20% extra on Surf Excel’s big pack.
(vi.) On every purchase of 5,000 or above, free gift hampers worth 2,000.
Ans:
(i.) Rebate
(ii.) Product combinations
(iii.) Sampling
(iv.) Full finance
(v.) Quantity gift
(vi.) Usable benefit.
6 Define public relations.
Ans:
It involves a variety of programmes such as news, events, publications,
sponsorships, etc to promote and protect the image of a company and its products.
7 Satya found ants in the newly bought pack of dairy milk silk and decided to call
the customer care of the company for reporting her complaint. When she did
not get any positive answer from them, she went to a customer activist group to
seek help. The group took measures to impose restrictions on the sale of the
firm’s products of the particular batch and urge people to refrain from buying
the products of the company. Satya also made the incidence viral on the social
net workings and due to all this, the company lost its image in the market. The
CEO gives the responsibility of bringing back the lost image of the company to
the Manager.
(a.) Identify and explain the concept of Marketing Management which will help
the Manager getting the firm out of the above crisis.
(b.) Also explain the role of above identified concept by stating any two points.
Ans: (a.) Public relations, It involves a variety of programmes such as news, events,
publications, sponsorships, etc to promote and protect the image of a company
and its products.
(b.) Product publicity, Counselling
8 Suyash is very thirsty. He is in the middle of a desert. Soon he finds a cold drinks’
shop. He goes and purchases three bottles and drinks them to satisfy his thirst.
After drinking the cold drink he realises that it has been developed after
analyzing the needs and preferences of the potential customers. On observing
the outer side of the bottle he finds details like contents, flavour, size, prize, etc.
1. What is ‘Cold Drink’ and ‘Thirst’ here in relation to each other?
2. Identify one feature of marketing which has been highlighted here?
3. How is cold drink a good market offer here?
Answer:
1. ‘Cold Drink’ is ‘want’ here and ‘Thirst’ is ‘need’.
2. One feature of marketing which is highlighted here is ‘Creating a Market
Offering’. On observing the outer side of the bottle he finds details like

contents, flavour, size, prize, etc.
3. A cold drink is a good market offer as it has been developed after analyzing
the needs and preferences of the potential customers.
9 Identify the true exchange mechanisms in the following cases:
1. Rajeev was a hardworking stationery shop keeper. One day when he was
standing in front of the mirror he took money from one of his pockets and
took out a pen from the other. He allocated ?100 for the pen and decided to
keep the pen for his personal use. In the coming days he utilized the pen
properly and was satisfied with if.
2. Kiran was a book seller. One day she was selling books. She approached a
person who was sitting on a pavement. She offered her a book and found
that he was not having enough money to pay. So she willingly gave her the
book without taking money.
Answer:
1. No it was not a true exchange mechanism as a true exchange mechanism
requires at least two parties.
2. No it is not a true exchange mechanism as both the parties should be capable
of giving something of value to each other.
10 Identify the marketer in the following cases:
1. A coffee making company is making big hoardings to appeal college going
students. A contest is also being organized outside every major company’s
office to lure more and more number of customers. The radio channels are
playing a very special jingle made for coffee lovers at least 3 to 4 times a
day. The company is trying its level best to increase its customer base.
2. A detergent making company has decided to sell organic detergent to suit
the needs of the people with very sensitive skins. This move is to make a
special niche in the market to increase brand loyalty towards the company.
3. A person is searching for a life saving drug for a particular disease. He has
tried several places but he hasn’t been able to find it. One day he comes to
know that a particular company used to make that drug a few years back on
a large scale but now it makes only limited number of tablets of that drug.
He approaches that company and urges them to give him the drug.
4. Country ‘A’ approaches Country ‘B’ and asks it to hand over some nuclear
material. This material is required in the Country ‘A’ to meet its electricity
requirements. Country B is rich in this resource but normally doesn’t export
the nuclear material to any country. However, on repeated urgings of the
Country ‘A’ it agrees to do so.
5. ‘White Wash’ is a car cleaning company having a good turnover. Recently in
the top level meeting it has decided to increase its customer base. For this
the company has decided to go door to door in all the major areas of their
reach and convince the car owners of all income brackets to give them a
chance for their services.
Answer:

1. The coffee making company
2. The detergent making company
3. The person who is looking for the drug is the marketer here as he is making
more efforts here.
4. Country A (though is a buyer here but since it is making more effort in the
exchange process).
5. The car cleaning company ‘White Wash’ as it is playing the active role here
11 Identify the marketing management philosophy involved in the following cases:
1. Geetika scooters are the leading manufacturers of scooters in the industry.
They have the first mover advantage in the industry. When they started
manufacturing scooters no other company was doing it. They manufacture
scooters and the middle class purchases them in a high number. With each
passing year the number of scooters sold is increasing. The company’s main
concern usually is to produce maximum number of scooters. Company’s
profit is governed by the maximum number of scooters they produce.
2. Aman microwaves produce microwaves but they do not try to understand
the needs of the customers. Their main focus is always on the quality of the
product but never on customer requirement. They try’ to include as many
features as possible in their product. This year they have added a special
type of alarm in their product which is a unique feature. The alarm is
available in ten varieties. However, the customers say that the product is
not of much use to them as it consumes a lot of electricity.
3. Ravi coolers is a very progressive company. The owners of the company feel
that unless and until they contribute to society it is worthless to exist as a
company. In a recent move by the government the organisation has decided
to help it. The organisation will be making five teams of hired
environmentalists from foreign countries. This team will help the local
people clean the portions of a polluted river in the country. The costs of this
project will be borne by the company.
4. Rajesh is a manager in a company. His main area of focus is to generate
revenue for the company through repeated sales. He decides to develop a
product for the company which can generate revenue in the long run. For
this he meets a team of R&D (Research & Development) of his company.
After a long meeting they decide to do survey. Based on the survey a
product is made to fulfill needs pf the customers. The product later
produces a lot of revenue through repeated sales in the long run.
5. A company decides to do promotion for a new chips flavour. For this many
contests are organized in different colleges. The youth is the target market
for the chips makers. However, there hasn’t been proper research about the
liking of the flavour among the youth. The company has launched this
product based only on intuition. The company has decided to go ahead with
the promotional campaign even if there is a negative response from the
buyers.

6. Aakriti foods is making a great impact in the food industry. The top
management of the company has been in news for helping the villagers in
the rural areas grow their income. They have made alliances with groups of
people of different villages. They procure handmade food products from
them and help these products find a way to the elite class of metro cities.
The company has its motto of replacement of the western taste with that of
Indian among the elite class. The company is very intelligent to see a high
paying elite class as the target segment.
7. A company is manufacturing a new type of helicopter for the rich people.
The helicopters manufactured are patented products of the company. No
other company has made this type of helicopter yet. The company says
since the helicopter is unique the booking of the product is done in advance
by the buyers. There has been demand in excess. The company is in no need
to market its product. It has to see that it can make the helicopter available
to people who can buy it.
8. An Air Conditioner manufacturing company is busy these days in adding
features to its products. This is being done to increase its customer base.
The company has not done any research to see which types of features are
liked and which are in excess. It is only making its product loaded with new
features. The needs of the customers are not considered. When asked why
they are not doing proper research to know the expectations of the
customers they replied that they have full faith on the performance of their
Air Conditioners.
9. A company which deals in apparels has decided to clear its stock. The
company has a huge pile of clothes to be cleared across its various branches.
The company has decided to give discount on its products. It even has
decided to go for various fashion shows in different colleges. It has also
decided to sponsor a few events. However, people say that the clothes are
not much of current fashion and the company is not considering the choice
of the customers.
10.An automobile company is a leading manufacturing company in its segment.
The company has decided to launch fully solar charged vehicles. This
technology will cost the company ?2000 crores annually. When the
relationship manager of the company was asked about the reason of
bearing so much extra cost he replied that the company considered
environmental friendly techniques as the only solution to increasing
pollution. The company feels by bearing extra cost it is fulfilling its
responsibility.
Answer:
1. Production concept
2. Product concept
3. Societal marketing concept
4. Marketing concept. Since the word ‘sales’ has been used do not confuse it

with the selling concept. Here customer needs are understood by the
organisation.
5. Selling concept. Though here the word promotion is used it doesn’t mean that
the company is applying the marketing philosophy. The product is not
launched after analysing the tastes and preferences of the potential
customers.
6. Marketing concept. Do not confuse it with Societal Marketing concept. The
main purpose of the company is not social welfare it is only maximization of
profit.
7. Production concept. Since the product is being sold on availability and
affordability of the product.
8. Product concept
9. Selling concept
10.Societal marketing concept
12 Extra Calories’ is a profit making potato chips company. The company has
entered a foreign country. It has found that the youth is going to be the
appropriate section of society to be targeted. The marketing head of the
company has a vision for the company for another 10 years to make its mark in
the market. The major challenge would be to beat the existing potato chips
selling companies by giving chips of better taste so that the existing young buyers
could make ‘Extra Calories’ chips as their favourite brand. The company is quite
clear about its objectives. It has decided to make a net profit of at least Rs. 50
crores in its first year and later on it would like to increase this profit with passing
years. Definitely the vision of the company is quite clear.
Identify the pillars of the marketing concept discussed in the above case.
Answer:
The pillars of marketing concept highlighted in the above case are:
1. Identification of the market to be chosen for the marketing. It has found that
the youth is going to be the appropriate section of society to be targeted.
2. Satisfying needs of the target market better than the competitors. The major
challenge would be to beat the existing potato chips selling companies by
giving chips of better taste so that the existing young buyers could make
‘Extra Calories’ chips as their favourite brand.
3. Doing all the above efforts for a profit (It has decided to make a net profit of
at least ?50 crores in its first year and later on it would like to increase this
profit with passing years).
13 Radhika was a student of Business Studies of Class XII. Her father was a farmer
who grew different varieties of rice and was well-versed about various aspects ot
rice cultivation. He was also selected by the government for a pilot-project on
rice cultivation. As a project-work in Business Studies she decided to study the
feasibility of marketing good quality rice at a reasonable price. Her father
suggested her to use the internet to gather customers’ views and opinions. She
found that there was a huge demand for packaged organic rice. She knew that

there were no predetermined specifications in case of rice because of which it
would be difficult to achieve uniformity in the output. To differentiate the
product from its competitors, she gave it the name of ‘Malabari Organic Rice’ and
classified it into three different varieties namely—Popular, Classic and Supreme,
based on the quality. She felt that these names would help her in product
differentiation. Explain the three functions of marketing, with reference to the
above paragraph.
Answer:
Three functions of marketing referred in the given paragraph are as follows:
1. Analysing and gathering market information. It is an important function from
marketing view point. It is essential for the marketer to identify the needs of
the customers and to take various decisions for successful marketing of goods
and services. It helps the marketer in an analysis of several opportunities as
well as threats along with the strengths and weaknesses of the business
enterprise.
2. Standardisation and Grading. Standardisation is the process of setting certain
standards for the product to provide it uniformity and consistency. It aims at
providing good quality of products to the customers to enhance their level of
satisfaction.
Grading refers to classifying the product into different groups as per certain
predetermined standards. It is necessary for products not having any
predetermined specifications.
3. Branding. It is the process of providing a name to the product so that it can be
distinguished easily from other similar products available in the market. It
helps the customer in identifying the product. It also helps in promoting the
sales and building customer loyalty. A brand name can either be generic or
specific. A marketer has to decide the branding strategy of the product
carefully so it brings in more sales for the business enterprise.
14 A company wants to increase the sales of its products. To do this the company is
applying all tactics like informing the customers about its products, persuading
them to buy these products, involving personal selling and promotional activities.
The sales might pick up with these efforts but there is something more it is
concerned about doing. The issue which is worrying the company is repeat
purchase. For this, the company is taking interest in after sales services,
maintenance services and providing useful information to the customers. With
these efforts the real purpose of the company may get fulfilled. However, the
company is avoiding one aspect which is related to the decision regarding
channels of distributing products. The company doesn’t have a well decided
strategy for it. Which functions of marketing have been highlighted in the above
case?
Answer:
The functions of marketing highlighted in the above case are:
1. Promotion. To do this the company is applying all tactics like informing the

customers about its products, persuading them to buy these products,
involving personal selling and promotional activities.
2. Customer support services. For this, the company is taking interest in after
sales services, maintenance services and providing useful information to the
customers.
3. Physical distribution. However, the company is avoiding one aspect which is
related to the decision regarding channels of distributing products.
15 Atul was a pen manufacturer. He used to make ball point pens in a small factory
in the basement of his house. Daily he would go to the market place and
distribute pens to the retailers. Some of the pens were sold by him of his own by
meeting persons on road. He had not kept any name for his pens. They were just
blue, black and red pens. One of his friends suggested him to keep a good name
of his pens. He kept his own name and started selling pens with the name of Atul
Pens. Then there were three categories of pens – Atul Red, Atul blue and Atul
black. Gradually his business started to pick up even more and he made good
revenue.
1. Which function of marketing is highlighted in the above case?
2. Which element of promotion mix has been highlighted in the above case?
3. What two types of names do you see in the above case?
4. Which of the above two identified names was better? Why?
Answer:
1. The function of marketing highlighted in the above case is Branding (One of
his friends suggested him to keep a good name for his pens).
2. The element of promotion mix which has been highlighted in the above case
is Personal Selling (Daily he would go to the market place and distribute pens
to the retailers. Some of the pens were sold by him on his own by meeting
persons on road).
3. The two types of names you see in the above case are—Generic name (When
he had kept no name for his pens and was just selling them as pens) and
Brand name (When he had kept the name of his pens as Atul pens).
4. Brand name was better. The reason being that people can identify products
with their makers only by a name which helps in association with the product;
a generic name can’t differentiate between two makers.
16 Identify the element of marketing mix in the following cases:
1. Naresh bought multi gym equipment from a renowned company. The
company gave a warranty period of 1 year. Naresh used to do workout on
this equipment daily. Everything was going fine till one day some problem in
the wire of the equipment occurred. Naresh called the company and told
them that it is still in the warranty period. A service engineer from the
company visited his home and fixed the problem. Naresh was further told
that the maintenance service for 1 year is free of cost. Which element of
marketing mix is maintenance here?
2. Savita has started a shirt manufacturing business. The shirts are in high

demand in the market. She has made her shirts available to the
intermediaries at the mall. The major concern for her is to make them
available the shirts whenever they need. The inventory kept by the
intermediaries is always kept in mind and wherever there is any shortage of
shirts they are supplied at the earliest. Sometimes prior information is kept
with the head office and any possible shortage in inventory is met in
advance. Which element of marketing mix is inventory here?
3. A vacuum cleaner company made a model which was of unique type. Many
people purchased it. However, after a few years its production had to be
closed down as the demand of the product declined with passage of time.
The company took a wise decision and always kept spare parts available
with it. This was done to maintain the specific type of vacuum cleaners
made by it. So if the customers who had purchased this vacuum cleaner
could buy the spare parts if in case they wanted to repair or run the cleaner
properly. Which element of marketing mix is ‘spare parts’ here?
4. ‘Zero Errors’ is a mobile manufacturing company. The mobiles are of high
quality and are in demand. The company has decided to increase its
customer base by initiating a liberal credit terms to the potential customers
on one of its mobile model. A ?40,000 mobile can now be purchased
through credit and the installments to be paid will be 10 of f4,000 each. It is
expected that this way many people can afford the pricey model of the
mobile. Which element of marketing mix is ‘credit terms’ here?
5. A noodle manufacturing company has started a campaign where it will be
going to different schools during the class timings. During this time free
samples of noodles will be distributed to the students and the teachers. The
idea is to make them aware about the taste and the quality of the product
in advance. The company is taking this initiative as it has in the past given
very good results to its other products. Through free samples it will develop
first contact of its noodles and its goodness with the potential customers.
Which element of marketing mix is ‘free samples’ here?
6. A TV manufacturing company is very confident about selling its products.
The main focus of the company is always on the features of the products
they make. They always try to add new features and these are added after
having done a lot of research on the subject. The quality is an obsession for
them. They try to keep their quality levels to the highest and for this all
necessary steps in the process of production are undertaken. Simple is to
say that the core strength of the company are quality and features of the
product. Which element of marketing are ‘Quality and Features’ here?
7. ‘Ultimate Luxury’ deals in making watches. The company has maintained its
number one spot in the watch making business. They have always
associated their watches with a class and as soon as the name of this watch
comes an association with luxury comes in the minds of the listeners. The
company has created its brand value by giving extreme attention to quality.

The brand value of the ‘Ultimate Luxury’ is the highest in the industry.
Which element of marketing mix is branding here?
8. A biscuit making company is trying to increase its business. It knows, for
this, the role of the intermediaries is going to be cruciai. A meeting of the
top management is called and factors are highlighted which are responsible
for the underutilisation of the potential of the distributors. In product like
biscuit the intermediaries play a very significant role. The company has
decided to give discounts to them and start a vigorous promotional
campaign to involve the intermediaries. Which element of marketing mix is
highlighted in the above case?
9. A new car has been introduced in the market. The car is breaking records of
selling. The reason behind its success is its mileage. The mileage of the car is
the best in the industry. No car is able to match its mileage. The company
has focused its attention to increase the mileage of the car further. For this
the R&D department is taking all the measures and making efforts to realise
the dream of increasing the car’s mileage. Which element of marketing mix
is ‘mileage’ here?
10.A coffee serving company named ‘Planetcups’ is thinking of increasing its
customer base. Earlier it was serving a medium cup of at a higher price for
the high income group. In order to bring the lower middle class in its reach it
has decided to give an additional cup with a cup of coffee. People have
reacted positively to this step of the company and gradually its customer
base is widening. Which element of marketing mix is going to be affected by
this decision of ‘Planetcups’.
11.‘Fabulous Organics’ is an FMCG company which only deals in organic
products. The company has its own farms where pure organic food products
are grown. The packaging is also organic with no use of synthetic materials
like plastic. The company has decided to take the benefits of consuming
organic food products tp the masses. It has decided to arrange for talk
shows, newspaper advertisements, TV advertisements, Celebrity
involvement and organising marathons. All these efforts will be able to
bring the benefits of organic products of this company to the potential
customers. Which element of marketing mix is highlighted in this case?
12.A five star hotel has decided to include picking up of clients from airports
and railway stations. This will definitely improve the image of the hotel. It
will add to the comfort of the clients. The hotel has done this to fight the
tough competition with the new . entrants in the market. This step is
expected to increase the charges of the stay at the hotel.
In the above case which element of the marketing mix will be affected?
In the above case which element of the marketing mix is the ‘additional service of
picking up of clients from airports and railway stations’?
Answer:
1. Maintenance here is an extended form of Product. So it is a product.

2. Inventory comes under Price.
3. Spare parts come under Product.
4. Credit terms come under Price.
5. It is Promotion. Don’t confuse it with Product. The reason is it is type of the
promotional activities taken up by the company.
6. ‘Quality and Features’ will come under Product. Don’t confuse it with
promotion.
7. Branding comes under Product.
8. The element of marketing mix which is highlighted in the above case is ‘Place’.
Intermediaries are the main focus of the above case and intermediaries come
under ‘Place’. Do not confuse it with ‘price’ (because in this line ‘discount’ is
mentioned) or with ‘promotion’ (because in the same line ‘promotional
campaign’ is given).
9. Mileage comes under ‘Product’ since it is a benefit given to the customers and
benefits come under ‘Product’ like quality and features.
10.The element of marketing mix which is going to get affected here is ‘Price’.
11.The element of marketing mix highlighted in the above case is ‘Promotion’.
Here the promotion is required to declare benefits of the products. Though
‘benefits’ in themselves are a part of ‘product’ yet here the main focus is on
‘promotion’.
12.In the above case:
o The element of marketing mix which is going to get affected will be
‘Price’ as the five star hotel will charge additional for this service.
o The ‘additional service of picking up of clients from airports and railway
stations’ will come under ‘Product’ as it is the part of the main product
of the hotel which is services. The extended product is ‘Product’.
17 the advertisement of a travel agency states the following:
‘Visit Agra — The city of Love’, ‘Udaipur — The city of Lakes’ and ‘Mysore — The
city of Gardens’. What is being marketed by the agency through the
advertisement?
Answer:
Place (Destination)
18 Mansi took her niece, Ridhima, for shopping to ‘Mega Stores’ to buy her a bag for
her her birthday. She was delighted when on payment of the bag she got a x box
along with the bag free of cost.
Identify the technique of sales promotion used by the company.
Answer:
Product Combinations.
19 ‘Armada Cables’ deals in cables of all varieties. Recently it has launched a new
product to increase its revenue and take the company to a new height. The
company is confused about keeping the price of a newly launched cable which is
meant for all types of household works. In order to beat the competition it has
decided to keep the prices low as there is tough competition in the market. The

company has got a contract from a government institution. This institution works
for non-profit motive and whosoever works for them will have to work at
subsidized rates so the company will have to take less money but will get tax
benefits; the impact on the organisation will be that it will have to provide cables
at a low price to support government initiative. However, the prime objective of
company otherwise is profit maximization. For its metro cities based customers
the company has decided to adopt various methods like improvement in quality
of salesmen, innovation in packaging, liberal credit terms, etc. Whatsoever the
conditions the company can’t go beyond a level as far as pricing is concerned.
One such reason is the amount of funds it puts both in the fixed capital like plant
& machinery or working capital like wages of labourers which fixes the
lowermost limit of the price. The management of the company has recently come
to know about a great opportunity arising in Europe for it. It has been contacted
by Europe based contractors who are making world class buildings around the
globe. They require the cables in high quantity and the requirement is so high
that they are ready to pay double the price provided the cables are made
available to them within a short period of time. However, the management of
the company has decided that in this case they can lower the prices of the cables.
This has been done keeping in mind the presence of other European competitors
who can lower the prices of their cables in order to survive in the market.
Identify the various factors affecting price determination in the above case.
Answer:
The various factors affecting price determination in the above case are as follows:
1. Extent of competition in the market. In order to beat the competition it has
decided to keep the prices low as there is tough competition in the market.
2. Government and legal regulations. This institution works for non-profit
motive and whosoever works for them will have to work at subsidized rates
so the company will have to take less money but will get tax benefits; the
impact on the organisation will be that it will have to provide cables at a low
price to support government initiative.
3. Marketing methods used. For its metro cities based customers the company
has decided to adopt various methods like improvement in quality of
salesmen, innovation in packaging, liberal credit terms, etc.
4. Product cost. One such reason is the amount of funds it puts both in the fixed
capital like plant & machinery or working capital like wages of labourers
which fikes the lowermost limit of the price.
5. Utility and demand. They require the cables in high quantity and the
requirement is so high that they are ready to pay double the price provided
the cables are made available to them within a short period of time.
6. Pricing objectives. This has been done keeping in mind the presence of other
European competitors who can lower the prices of their cables in order to
survive in the market.
20 Sunny Burgers has many branches throughout the country. The company believes

in hiring places and giving rent to the owners of the places at highly busy places
of the cities. However, the company deals with its customers on its own thus
providing
them freshly prepared burgers by its own staff. The company has a wide base of
customers. The company has kept the nature of its channel so because of one
main characteristic or nature of the product it serves. It has always tried to please
its customers and for this reason the services are fast. The company has decided
to launch an advertising campaign for creating awareness about its new product.
The world cup of cricket is one such good opportunity where advertising can
create its impact. It has even contacted the number one advertisement making
company for this purpose. However, the top management is concerned about the
impact as the potential customers or the prospects can’t be delivered the
message compulsively. So there is one scheme the company has decided to
launch where a burger will be provided with an additional cold drink on all days
of the first week of the month.
1. Which channel of marketing is highlighted above?
2. Which product related factor do you think is responsible for this selection of
channel?
3. Which one component of physical distribution is affected due to the fast
services given by the company?
4. Which merit of advertising has been highlighted in the above case?
5. Which one limitation of advertising has been highlighted in the above case?
Answer:
1. The channel of marketing highlighted above is ‘Zero Channel’ or ‘Direct
Channel’ (However, the company deals with its customers on its own thus
providing them freshly prepared burgers by its own staff).
2. The product related factor which is responsible for the selection of zero
channel is ‘perishable’ (The company has kept the nature of its channel so
because of one main characteristic or nature of the product it serves).
3. The component of physical distribution which is affected by fast services is
‘order proces¬sing’ (It has always tried to please its customers and for this
reason the services are fast).
4. The merit of advertising highlighted in the above case is ‘mass reach’ (The
world cup of cricket is one such good opportunity where advertising can
create its impact).
5. The limitation of advertising which has been highlighted in the above case is
‘Advertising is less forceful’ (However, the top management is concerned
about the impact as the potential customers or the prospects can’t be
delivered the message compulsively).
6. The company has decided to use ‘product combination’ as the sales
promotion technique to increase its sales (There is one scheme the company
has decided to launch where a burger will be provided with an additional cold
drink on all days of the first week of the month). The merit of advertising

highlighted in the above case is ‘mass reach’ (The world cup of cricket is one
such good opportunity where advertising can create its impact)
21 A car manufacturing & selling company has reached its coverage in three
continents. Definitely the client base is huge. The company deals with its clients
through selected showrooms owned by credit worthy people. The channel
related decision is a successful decision of the company. It could have gone for
the direct ownership of the distribution centres but due to the extra amount of
finance involved it didn’t prevented the company from doing so. Recently a car
was launched by a company. The company has decided to make this car available
in a new country where the reach is a little difficult and the company will have to
use innovative ideas in one component of physical distribution. The company is
known world over for its innovation in different areas. When it comes to
promotional ideas the company always depends upon one component of
promotion mix which is of paid form and has an identified sponsor. Doing
business is always full of challenges. Last year a competitor blamed the company
for using the above referred component of promotion mix for selling a car which
was not upto the standards but even then people purchased it because of the
promotional efforts made by the company.
1. Which type of channel is used by the car company to reach to its customers?
2. Which factor has resulted in the nature of channel the company has
adopted for selling the cars?
3. Which component of physical distribution has been highlighted in the above
case in which company will have to bring innovation?
4. Which component of promotion mix has been highlighted in the above case
which is used by the company usually?
5. Which objection to the above referred component of promotion mix has
been highlighted in this case?
Answer:
1. The type of channel used by company to reach its customers is ‘indirect
channel (one level)’. The Company deals with its clients through selected
showrooms owned by credit worthy people.
2. The factor which has made the company go for the indirect channel (one
level) is ‘company characteristic’. The Company doesn’t want to take extra
financial burden by owning the distribution centres.
3. The, component of physical distribution in which the company will have to
bring its innovation is ‘transportation’. The company has decided to make this
car available in a new country where the reach is a little difficult and the
company will have to use innovative ideas in one component of physical
distribution.
4. The component of physical distribution highlighted above and used generally
by the company is ‘advertising’. When it comes to promotional ideas the
company always depends upon one component of promotion mix which is of
paid form and has an identified sponsor.

5. The objection to promotion mix which has been highlighted in the above case
is ‘advertising encourages sale of inferior products’. Last year a competitor
blamed the company for using the above referred component of promotion
mix for selling a car which was not upto the standards but even then people
purchased it because of the promotional efforts made by the company.
22 Identify the function performed by the public relations department / mentioned
in the following cases:
1. An innovative organisation involved in the manufacturing of electronic
products launches its products in the trade fair every year. This is done to
gain attention of the general public towards the quality and technology of
its products.
2. An FMCA company involved in the production of more than two hundred
products has very good relations with the top 5 News Channels. This gives a
great support to the company when it comes to generating positive image in
the eyes of the public.
3. A multi-national company has presence in five continents and thirty
countries. The company manages good relations with the top officials and
the ministers of these countries. This helps the company to keep an eye on
the various possible changes in the laws of the land and their execution.
4. Ramesh who is the head of the Public Relations department of a well
established company utilises PR tools like Brochures, Annual reports,
Newsletters etc. He ensures that the top level managers of the company
connect with TV channels and give
interviews whenever required. All his efforts have resulted in creating a
good image
of the company with its target audience.
Answer:
1. Product publicity
2. Press relations
3. Lobbying
4. Corporate communication.
23 Identify and explain the marketing management philosophy which implies that
products and services are bought not merely because of their quality or brand
name, but because they satisfy a specific need of a customer.
Ans. The marketing management philosophy referred here is ‘Marketing concept’.
This concept emphasis that in the long-run, profits can be maximised by identifying
and satisfying the needs of present and potential customers. Therefore, customer
satisfaction becomes the focal point of all business decisions.
24 Nisha, a school bag manufacturer, decided to improve the product for profit
maximisation and thus, added a water bottle holder to the existing design.
(i)Identify the marketing management philosophy adopted by Nisha.
(ii)Explain this philosophy on the basis of (a) Main focus and (b) Means and ends
Ans. (i) Product concept or philosophy Firms which follow the product concept,

propose that the way to realise business goals is by making high quality products.
These firms manufacture the products of superior quality. Nisha is trying to bring
improvement in quality, by corporating a new feature, i.e. adding a water bottle
holder in the bag.
(ii) (a) Main focus The main focus of this concept is to improve the quality of
products. The marketers now believed that potential exchange would be realised
when the products are of high quality. Thus, the firm now focused on making
superior products and improving them overtime.
(b) Means Product improvement.
Ends Profit through improvement in product quality
25 Why is "Marketing'' called a social process?
Ans: Because today's organisations work according to the requirements and wishes
of their target market, marketing is referred to as a social process. A corporation
that adopts the societal notion must strike a balance between profitability,
customer pleasure, and the interests of society.
26 Ajay was appointed as a marketing head of "Alfa Enterprise' manufacturers of
toothpaste and toothbrushes. His target sale was 2,000 units a month. Apart
from thinking about various channels of distribution to achieve the target he
himself started visiting schools in backward areas. He found that even after
taking various steps and counselling, some school children had not started
brushing their teeth. He investigated and found that they could not afford to buy
toothbrushes and toothpaste. So with due permission he started donating 200
toothbrushes and toothpastes every month to the school.
i. Identify the channel of distribution Ajay would adopt for distribution of
toothpaste and toothbrushes and justify it by giving one reason.
Ans.
i. Ajay should use the zero-level distribution route. This is due to the fact that he
may directly market things to schoolchildren and establish a direct relationship
with them.

CHAPTER 12 CONSUMER PROTECTION
1 Besides a ‘consumer’, name any two parties who can file a .complaint before the
appropriate consumer forum.
or
Who can file a complaint under the Consumer Protection Act, 1986?
Ans. A complaint under Consumer Protection Act, 1986 can be made by: (Any two)
(i) Any consumer.
(ii) Any registered consumers’ association.
(iii) The Central Government or any State Government.
(iv) One or more consumers, on behalf of numerous consumers having the same
interest.
(v)A legal heir or representative of a deceased consumer.
2 Mohit filed a case against Domestic Collings Ltd in the District Forum, but he was
not satisfied with the orders of the district forum. Where can he appeal further
against the decisions of district forum?
Ans. Mohit can further appeal at the State Commission against the decision of the
District Forum.
3 Amrit filed a case against Volvo Ltd in the State Commission but he was
not satisfied with the orders of the State Commission. Name the authority to which
he can appeal against the decisions of State Commission.
Ans. Amrit can approach National Commission to appeal against the decision of the
State Commission.
4 How are consumer grievances redressed by the three-tier machinery under CPA,
1986? Explain.
Ans. The three-tier-machinery under CPA, 1986 consist of District Forum, State
Commission and the National Commission. A consumer can file a case in District
Forum if the vaiue of goods and services alongwith the compensation claimed, does
not exceed Rs 20 lakh, in the State Commission if the value of goods and services
alongwith the compensation claimed is over Rs 20 lakh but less than rs 1 crore, and in
the National commission, if the value of goods and services alongwith the
compensation claimed is above Rs 1 crore.
On receiving the complaint, the District Forum/State Commission/National
Commission shall refer the complaint to the party against whom the complaint is
filed. If required, the goods or a sample, thereof, shall be sent for testing in a
laboratory. The court shall pass an order after considering the test report and hearing
to the party against whom the complaint is filed.
5 State any eight reliefs available to a consumer under the provision of CPA, 1986.
Ans. The reliefs available to a consumer under the CPA, 1986 are:
(i) To remove the defects in goods or deficiency in services.
(ii) To replace the defective product with a new one, free from any defect.
(iii)To refund the price paid for the product.
(iv) To pay a reasonable amount of compensation for any loss suffered.
(v)To pay punitive damages in appropriate circumstances.
(vi)Not to offer hazardous goods for sale.
(vii)To withdraw the hazardous goods from sale.
(viii) To cease the manufacture of hazardous goods.
6 Harish purchased a medicine from Bhatia Medical Stores for his son, who had high
fever. Even after giving the medicine his son’s condition did not improve and he had
to be hospitalised. Doctor informed Harish that medicine given to his son was
spurious. Harish complained about this to Bhatia Medical Stores. As-a result, Bhatia
Medical Stores decided to file a complaint against the manufacturer in the
consumer court. Can Bhatia Medical Stores do this? Give reason in support of your
answer. Also, explain who is a consumer as per Consumer Protection Act, 1986.
Ans. ‘Bhatia Medical Stores’ cannot file a complaint against the manufacturer in the
consumer court because Bhatia Medical Stores is not a consumer in this case. He is
not a user but has obtained medicine for resale purpose/commercial purpose.
Meaning of Consumer as per Consumer Protection Act, 1986 Anita can file a
complaint against the seller of the book in the District Forum. District Forum is
established by the State Government in each district. In District Forum, only such
complaints can be filed in which the value of goods or services and the compensation
claimed is not more than Rs 20 lakhs.
Consumer as per CPA, 1986 Under the Consumer Protection Act, 1986, the term
‘consumer’ has been defined as any person who buys goods or hires or avail 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 also includes any user of such
goods with the approval of the buyer or any beneficiary of services when such goods
or services are availed of with the approval of the person concerned but does not
include a person who avails such services for any commercial purpose.
7 Explain the following as ways and means of consumer protection
(i)Consumer awareness
(ii)Government
Ans. (i) Consumer awareness A well informed consumer will safeguard himself from
unfair trade practices. A consumer should be well informed about his rights, duties
and reliefs available to him. Only then, he would be in a position to raise his voice
against unfair trade practices and safeguard his interests. In addition to this, an
understanding of his responsibilities would also enable a consumer to safeguard his
interest.
(ii) Government The government can protect the interest of the consumers by
enacting various legislations. CPA is one of them which provides 3-tier system of
redressal to the aggrieved consumers. The legal framework in India encompasses
various legislations which provide protection to consumers.
8 A company is using sub- standard electric wiring in its coolers. Which consumer
right is being violated?
Ans: The Right to Safety is violated here.

9 Rita wants to buy a packet of juice. As an aware customer how can she be sure
about the quality of juice she plans to buy?
Ans: Rita can inquire about FPO (Fruit Product Order 1955) certifications. She can
check the manufacture and expiry dates, as well as the storage and display
conditions.
10 Pragya bought an iron of a reputed brand for Rs 1,500 but it caused an electric
shock while it was being used. Pragya wants to exercise her 'Right'. Identify the
'Right' under which she can be protected.
Ans: The right to safety is the one under which Pragya can be protected.
11 Suman bought a box of cheese of a reputed brand from a local shopkeeper. On
opening the box she found a piece of stone in the cheese. She reported the matter
to the shopkeeper who forwarded her complaint to the concerned company. Within
a week the representative of the company visited Suman's residence with an
apology and as a replacement offered her a new cheese pack with four other
varieties of cheese as compensation for the inconvenience to her. State the
consumer right which Suman exercised.
Ans: Suman's consumer right is the "Right to Seek Redress."
12 Manuj bought a packet of chips from a local shopkeeper and found that the
ingredients given on the label were not legible. He complained about it to the
company. The company sent a written apology stating that they will make sure that
existing packets are withdrawn from the market and new packets with legible
labels are soon made available.State the consumer right which Manuj exercised.
Ans: Manuj exercised his 'Right to Information.'
Explanation: Because the ingredients in the chips were illegible in this scenario,
Manuj was unable to see them. Because a consumer has the right to be fully informed
about the quality, quantity, price, ingredients, weight, and other aspects of goods and
services, he exercised that right.
13 Mr. Verma who was a vegetarian went to a snack bar for having French fries and
later found out that it had non-vegetarian content. Neither the advertisement nor
the packing of the product displayed that the product has non-vegetarian content.
Will Mr. Verma be able to claim compensation which right of the consumer is
violated here?
Ans: There is a violation of the consumer's right to know in this case. According to the
amendment to the regulations in the Weight and Measurement Act, (2000), every
product should explicitly bear a green dot for vegetarian ingredients, while a brown
dot indicates the use of non-vegetarian ingredients. It is also required to display the
dot on all advertisements, whether electronic or print, as well as all posters,banners,
stunts, and so on, so Mr. Bharti would be able to claim compensation.
14 State any three points of importance of consumer protection from the point of view
of consumers.
Ans: Consumer protection entails educating consumers about their rights and
responsibilities, as well as resolving their grievances and complaints. Important
consumer protection points from the consumer's perspective:
i. Consumer Ignorance: Because consumers in India are unaware of their rights and
available remedies, it is critical to educate the consumers about their rights which can
protect them.
ii. Consumer exploitation: Sellers engage in exploitative and unfair trade practises in
order to gain profits and maximise their sales, leading to an increase in the
importance of consumer protection.
iii. Unorganized consumers: In India, consumer organisations as well as non-
governmental organisations (NGOs) are few and weak.
15 Explain the following rights of consumers:
(i) Right to be informed
(ii) Right to safety
Ans:
i. Right to be Informed: Every consumer has the right to have and gain complete
information about the goods and services they purchase. They must, for example,
have information on the quality, quantity, price, ingredients, and weight of goods and
services. Manufacturers in India are required by law to provide product information
on the package and label. This enables the consumer to take an informed and wise
decision.
ii. Right to Safety: Consumers have the right to protect themselves from goods and
services that could endanger their lives, health, or property. Consumers, for example,
can be harmed if they use faulty electrical appliances. Under the Act, every consumer
has the right to be protected from such goods.
16 State any three functions performed by non-governmental organisations for
Protection.
Ans: The following are the functions of Non-Governmental Organizations (NGOs) for
consumer protection.
i. Consumer Education: Non-governmental organisations (NGOs) and consumer
organisations (CBOs) organise various training programmes and workshops in order
to educate and spreading awareness about their rights as well as responsibilities.
ii. Journal Publishing: In addition to training programmes and seminars, they spread
awareness through journals and periodicals. These journals and other publications
provide information on a variety of consumer issues, legal remedies, and other
related topics.
iii. Product Quality Testing: They conduct quality tests on various products in
laboratories and publish the results. Such findings assist consumers in making well-
informed decisions.
17 Who can file a complaint in a consumer court?
Ans: Consumer courts as well as consumer forums that have been established under
the Consumer Protection Act to address consumer complaints. The following people
have the right to file a complaint in a consumer court.
(I) Any consumer;
(ii) Any registered consumer association or organisation;
(iii) The Central and State Governments; and

(iv) A consumer or a group of consumers acting on behalf of a number of consumers
who share a common interest.
(v) The deceased consumer's legal heir or representative.
18 Indian Youth Organisation (IYO) organised a visit of its members to an old age home
to inculcate the habit of social work among them. The visit revealed that the living
conditions of the inmates of the old age home were not hygienic. So, the IYO
members decided to clean the premises. During their cleanliness drive, they
realised that the old age home also required pest control. But some of the inmates
of old age home were reluctant for it because they believed that the pest control
may create health problems for them. IYO, therefore decided to provide ethical,
safe and odourless pest control. They showed to the inmates of old age home a
pamphlet of the proposed pest control product which promised easy, inexpensive
and long lasting pest control. The inmates happily agreed and the pest control was
carried out. It worked for a fortnight but to their dismay the effect started wearing
off. IYO contacted the pest control company which kept on postponing their visit.
After waiting for a month, IYO filed a case in the consumer court.
The consumer court was satisfied about the genuine.
(a) State any six directions that might have been issued by the court.
(a) Also, identify any two values that are being communicated by IYO to the society.
Ans:
(a) The court may order’
(i) Repair the defective goods or correct the service defect.
(ii) Replacement of the faulty item with a new one.
(iii) Refund the consumer's purchase price for the good or service.
(iv) Payment of monetary compensation for the loss or injury suffered.
(v) Removing the misleading advertisement and replacing it with a correct
advertisement going forward.
(vi) Payment of an appropriate amount (not less than 5% of the item in question) to
the Consumer Welfare Fund.
(b) Values involved
(i) Encouraging cleanliness and hygiene
(ii) Taking on social responsibility
19 Sumit purchased an ISI marked washing machine of a famous brand ‘MG’ from TG
Electronics Ltd. The shopkeeper asked him to wait for two days for installation of
the machine. His friend, Vivek, was very fond of experimenting with new electronic
products. He told Sumit that there is no need to wait for the company’s
representative to install the machine and that he could do it. So, both of them
installed the machine without following the manufacturer’s instructions. Initially,
the machine worked effectively and the wash was good. But after two days, the
machine started stopping in between the wash cycle. Sumit and Vivek tried their
best to start the machine but failed in their efforts. Sumit, therefore, approached
TG Electronics Ltd., which refused to provide any service on the plea that the
installation of the machine was not done by the company.

(a) State the responsibility which Sumit had to fulfil as an aware consumer to get
the services of the company.
(b) Explain briefly any two rights which Sumit could have exercised had he fulfilled
his responsibility identified in part (a).
Ans:
(a) Sumit's responsibility as an informed consumer to obtain the company's services is
to learn about the risks associated with the products as well as services, to follow the
manufacturer's instructions, and to use the products safely.
(b) Sumit could have exercised two rights if he had fulfilled his responsibility:
i. Right to be Heard: Consumers have the right to be heard in an appropriate legal
forum if they have a complaint or are dissatisfied with a product or service. In other
words, a consumer has the right to file a complaint.
ii. Right to Seek Redress: Consumers have the right to seek redress in the event of a
complaint and, if necessary, to seek appropriate compensation. The Act provides for
compensation in the form of product replacement, cash compensation, and defect
repair/removal.
20 As a well informed consumer. what kind of quality certification marks you will look
for before buying ‘products? Specify any 6 points.
Ans: The following are some examples of quality certification marks:
(1) FPO (Fruit Products Order 1955) – It specifies as well as regulates the production
& marketing of processed fruits & vegetables, sweetened aerated water, vinegar, and
synthetic syrups.
(2) ISI: On consumer durable goods.
(3) Hallmark: BIS gold jewellery certification scheme.
(4) Earthen Pitcher: For labelling eco-friendly products.
(5) AGMARK: This is a quality standard for agricultural commodities and similar
stock products.
(6) Wool mark: This symbol denotes 100 percent pure wool.
21 Explain the rights and responsibilities of a consumer.
Ans: A consumer has six rights under the Consumer Protection Act. A consumer's
rights are as follows.
1. Right to Safety: Every consumer has under the act the right to be protected from
goods and services that endanger life, health, or property. Manufacturing flaws in
electrical appliances and cooking gas cylinders, for example, can be hazardous. The
consumer has a right to be shielded from such products.
2. Right to be Informed: Under this, the consumer has the right to be informed about
the quality, quantity, price, ingredients, weight, and other aspects of the goods and
services. In India, manufacturers are required by law to provide all such information
on the package and label of the goods. This helps the consumer in taking an informed
decision.
3. Right to Choose: A consumer has, under the act, the right to select from a wide
range of goods and services at competitive prices. That is, the consumer has the right
to a diverse range of products at reasonable and competitive prices. As a result, the

retailer or supplier should provide a wide range of products in terms of quality, brand,
price, and so on. They should not persuade customers to purchase a specific product
or service.
4. Right to be Heard: A consumer has the right to file a complaint if he or she has a
complaint or is dissatisfied with something. A consumer in such case can file a legal
complaint as well as seek redress for any form of exploitation in appropriate
government-established forums. Many consumer organisations and associations are
now working in this area as well.
5. Right to Seek Redress: In any case of exploitation, consumer under the act has
right to seek redress as well as compensation. The Consumer Protection Act provides
in such cases for compensation in the form of product replacement, cash
compensation, defect repair/removal, and so on.
6. Right to Consumer Education: It is said to be the right of the consumers to be
educated as well as to have awareness of their rights, as well as the remedies
available in the event of exploitation. Many government and non-governmental
organisations are actively involved in this endeavour.
A consumer has some responsibilities in addition to his rights to protect himself from
exploitation.
Some of a consumer's responsibilities are as follows:
(I) Awareness: A consumer should be aware of the various goods and services that
are available.As a result, he is able to make an informed and wise decision.
(ii) Seeking Quality Marks: Before purchasing goods, a consumer should always look
for quality certification marks such as ISI in the case of electrical goods, AGMARK in
the case of agricultural goods, and so on.
(iii) Requesting Cash Memo: When purchasing goods and services, a consumer should
always request cash memos or bills. The bill serves as proof of purchase and can be
used as a reference in the event of a complaint.
(iv) Reading Labels: Product labels provide information such as price, weight, and
expiration date. Before purchasing the goods, the consumer must carefully read these
labels.
(v) Honest Transactions: A consumer should always opt for legal transactions and
avoid illegal trade practises such as black marketing and hoarding.
(vi) Ensure Safety: To ensure the safe use of the product, a consumer must carefully
read the manuals and instructions provided by the manufacturer. Before using an
electrical appliance, for example, the instructions must be carefully read.
(vii) Complaint Filing: If the product is found by the consumer as defective or any
form of deficiency in the quality, a complaint must be filed in the appropriate forum.
(viii) Consumer Societies: Consumer organisations and societies such as the
Consumer Coordination Council and the Common Cause as well as the Karnataka
Consumer Service Society, among others, must be formed to promote consumer
education and awareness.
(ix) Environmental Protection: Consumers must also work to protect the

environment by avoiding waste, reducing pollution, and so on.
22 A shopkeeper sold you some spices, claiming that those were pure. Later, a
laboratory test showed that those were adulterated. What precautions you should
have taken before buying the products?
Ans. While buying a product or service, a consumer should take the following
precautions
(i) See the name of the product, the manufacturer’s name and address.
(ii) Date of manufacture and date of expiry.
(iii) Net weight.
(iv) Standardisation mark.
(v) Maximum retail price.
(vi) Directions for using the product, if any.
(vii) See that the packet was properly sealed and not
puffed, torn or in a bad condition.
23 Rahul Bajaj purchased a car for ` 78 lakh from an automobile company. Later on, he
found defects in its engine. Suggest to him the appropriate authority, where he
could file a complaint under Consumer Protection Act.
Ans. He can appeal before the District Commission as in this, such complaints can be
filed whose claim is less than 1 crore. On receiving the complaint, the District
Commision shall refer the complaint to the opposite party. After being satisfied with
the genuineness of complainant, it passes orders such as remove the defects in
goods, return the price paid or pay compensation, etc.
24 Meeta purchased a book of ` 375 and took the cash memo. Later, she found that the
original price of a book is ` 275, but the local bookseller had put a sticker of ` 375.
What actions can be taken by her in this case?
Ans. Following actions can be taken
(i) She should force him to refund the extra price paid by her.
(ii) She can make her friend circle aware about the wrong practices of the seller and
ask them not to buy books from that bookseller.
(iii) She can inform to the publication house, whose books are being sold by that
bookseller at wrong price, so that appropriate actions can be taken.
25 State any two reliefs that the consumer court can grant to consumers in case of
genuine complaints in each of the following situations
(i) Divya was charged more than the printed Maximum Retail Price (MRP) for a
bottle of water.
(ii) Clara was sold a car with a defective engine.
(iii) Antony suffered injury while using newly bought defective electric heater.
Ans. Following are the two reliefs that the Consumer Court can offer in the given
cases
Case (i) Divya was charged more than the printed Maximum Retail Price (MRP) for a
bottle of water.
(a) To refund the price paid for the product.
(b) To discontinue the unfair trade practice.
Case (ii) Clara was sold a car with a defective engine.
(a) To remove the defect in engine.
(b) To replace the defective engine with the new engine.
Case (iii) Antony suffered injury while using newly bought defective electric heater.
(a) To pay a reasonable compensation for any loss or injury suffered by the consumer
due to negligence of the opposite party.
(b) To withdraw hazardous goods like defective electric heater from sale.
26 Explain the three tier machinery under The Consumer Protection Act for redressal
of consumers grievances.
Ans. The three tier machinery under The Consumer Protection Act for redressal of
consumer’s grievances consists of
(i) District Commission
(a) The State Governments are required to establish District Commission in each
district.
(b) A District Commission can receive consumer complaints, where the value of goods
or services and the compensation claimed does not exceed 1crore.
(c) On receiving the complaint, the District Commission shall refer the complaint to
the opposite party concerned and send the sample of goods for testing in a
laboratory.
(ii) State Commission
(a) State Commission is set up by the State Government and its jurisdiction is
restricted to the boundaries of the state concerned.
(b) Only those complaints can be filed, where the value of goods or services and
compensation claimed is more than ` 1 crore but not more than 10 crore.
(c) The appeals against the orders of any District Commission can also be filed before
the State Commission, within 45 days of passing of the order.
(iii) National Commission
(a) The National Commission is set up by the Central Government.
(b) All complaints pertaining to those goods or services and compensation whose
value is more than ` 10 crore can be filed.
(c) Appeals against the order of any State Commission can also be filed before the
National Commission, within 30 days of passing of the order.
(d) An order passed by the National Commission is appealable before the Supreme
Court within a period of 30 days of such order.

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RANA COMMERCE CLASSES

CLASS: 12TH COMMERCE

CHAPTER-1 NATURE AND SIGNIFICANCE OF MANAGEMENT

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Scalar Chain and Gang Plank

(i) It causes delay in reaching communication to the required level.

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1 How does planning provide direction?(Any Three)

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1. Planning may not work Frequent changes in the political or

2 Planning leads to rigidity Following a pre-decided plan when

3. Planning involves huge costs Incidental expenses such as expenses on

41 In order to reduce the cost, an organization is planning the following:

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Ans. Steps in the Process of Organising

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