Business-studies

Set-3
Maximum Marks: 90

Time allowed: 3 hours

SECTION A
Answer1: Promotion is the marketing function which is concerned with informing the customers
about the firms products.
Answer2: The factor affecting the fixed capital requirements of Fashionate Pvt. Ltd. is level of
collaboration: At times, business organisations undergo collaboration with each other
and jointly establish certain facilities. In such cases, an individual organisations
requirement for fixed capital reduces.
Answer3: The size of assets, profitability and competitiveness are all affected by capital budgeting
decision/ investment decision.
Answer4: Management is the process of getting things done, where process is related to the
primary functions or activities that management performs to get the things done with
the aim of achieving the goals effectively and efficiently.
Answer5: Manuj exercised Right to be informed.
Explanation: In this scenario, Manuj could not see the ingredients used in the chips as they
were not legible. Since, a consumer has the right to be completely informed regarding the
quality, quantity, price, ingredients, weight, etc., of goods and services, he exercised this
right.
Answer6: Functional structure is a type of organisation structure which promotes efficiency in
utilisation of manpower.
Answer7: Accountability refers to the answerability of the superior for the final outcome of the
work he or she has been assigned.
Answer8: The inspector is responsible for controlling the quality of work done in 'functional
foremanship'.
Answer9: (a) The internal/external sources of recruitment used by Senor Enterprises Ltd to fill
the various positions are listed below.
For the post of Human Resource Manager: Promotion
For the post of Marketing Head: Placement Agencies and Management Consultants
For the post of Assistant Manager: Casual Callers
(b)The following are the merits of above listed sources of recruitment.
Merit of Promotion: Boosts employee morale and induces better performance
Merit of Placement Agencies and Management Consultants: Helps in inducing the
right talent in the organisation because of their expertise and specialisation in the field of
hiring fresh blood.
Merit of Casual Callers: Cheapest source of recruitment.
Answer10: The two functions performed by SEBI in the given case are Regulatory Functions
and Protective Functions.
The lines from the paragraph which indicate the functions performed are as follows:
Regulatory Functions: Regular inspection and by conducting enquiries of the brokers
involved.
Protective Functions: Imposed a heavy penalty on Mr. Sanjay Nehra
Answer11: The functions performed by Non- Governmental Organisations(NGOs) for consumer
protection are as follows.

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(i) Consumer Education: The NGOs and consumer organisationsorganise various training
programmes and workshops to educate the consumer about their rights and
responsibilities.
(ii) Publishing Journals: In addition to the training programmes and seminars they also
spread awareness through journals and periodicals. These journals and other
publications provide knowledge about various consumer problems, legal remedies
available and other such matters.
(iii) Testing Quality of the Products: They carry out the quality tests for various products
in laboratories and publish the results. Such results help the consumers in making
informed choices.
Answer12: (a) The two communication barriers because of which Bikmac Enterprises was not able
to achieve its target are:
(i) Organisational Barriers : The type of organisational barrier because of which Bikmac
Enterprises was not able to achieve its targets is 'Policy of the organisation'. If the
organisations policy (such as following a centralisedorganisational structure) does not
support free flow of communication, then it hampers the flow of communication. For
instance, in a centralisedorganisational structure, free flow of communication is
restricted.
(ii) Personal Barriers : The type of personal barrier because of which Bikmac Enterprises
was not able to achieve its targets is 'Low confidence on subordinates by the
superior'. When the superior does not have confidence on the subordinates, he is
unwilling to involve them in discussions and other matters. This leads to a
communication gap between the two.
(b) Types of Organisational Barrier
Rules and regulations: Rigid rules and regulations hamper effective communication.
Such rules as following strict channels of communication (through scalar chain) make the
communication process cumbersome and lead to delays in the flow of information.
Types of Personal Barrier
Fear: At times, due to difference in status and authority, the subordinates fear their
superior and often hesitate to communicate freely with them. In such cases, the
communication is suppressed.
Answer13: The following points highlight the importance of planning:
(i) Renders Direction: Planning clearly states the goals and objectives to be achieved. Thus,
it acts as a guide for the actions to be taken. It provides a direction to the actions of
different departments of the organisation. They guide the managers about things to be
done, what route to take and how the objectives are to be achieved. It ensures that the
path taken for accomplishment of goals is righteously chosen. Planning also ensures that
various departments of the organisation work in a coordinated manner towards the
achievement of the desired objectives.
(ii) Subdued Risk: By guiding an organisation in the right direction to follow, it accredits its
managers to analyse and anticipate changes. This leads to a reduction in uncertainty of
the foreseen events. Planning shows how to deal with situations which may arise in the
due course of management, though it does not fully eliminate the problems.
(iii) Minimised Overlapping: As the managers are well comprehended with the policies and
plans of the organisation, they coordinate the activities together to reach the objectives.
Thus, overlapping of the work is reduced. Also any wastage of resources that takes place
due to repeatedness is reduced. Proper planning ensures that there is no confusion and
misunderstanding and the work proceeds smoothly.

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Answer14: The element of function of management used by the CEO is Motivation. This is
because as per the travel policy of the company subordinates were not acting in a
desired manner to achieve organisational goals. An employee does not act in a desired
manner when he feels demotivated. But a change in travel policy had a positive impact
on employees and they start acting in a manner desired by the leader which is possible
only with the help of motivation.
The following points highlight the features of motivation:
1. Is an inherent feeling: Motivation is a feeling that is inherent to an employee. For
instance, needs, desires, wants and ambitions are internal to individuals and directly
influence their behaviour to work in a certain manner.
2. Leads to goal-oriented behaviour: Motivation influences the behaviour of the employees
and induces them to work efficiently towards the achievement of the goals of the
organisation.
3. Can be both positive and negative: Positive motivations can take the form of rewards,
incentives or promotions. On the other hand, negative motivation can be in the form of
warning or demotion. The kind of motivations to be followed depends on the needs and
attitudes of the employee.
4. Is a complicated process: Human behaviour is complex. An organisation comprises
numerous individuals who have different desires, expectations and attitudes. This implies
that motivation also varies from one individual to another, making the process highly
complicated.
Answer15: (a) The communication tool used by the marketer to improve its image is Public
Relations. It refers to the activities undertaken by an organisation to promote and
protect the image of an organisation or its products. It aims at strengthening the
relations of the organisation with its customers, shareholders, employees, investors, etc.
(b) The following points highlight the role of public relations.
1. Building public relations helps an organisation to function smoothly and achieve the
desired objectives.
2. Public relations helps the organisation in building customer interest in its established
products. This further helps the organisation in building a customer base for its new
products.
3. It helps an organisation in building a positive image for its products. Moreover, an
organisation facing negative publicity can use public relations to improve its image and
reputation.
4. Public relations supplements promotion through advertising.
Answer16: The dimensions of business environment discussed in the above case are as follows:
(i) Economic Environment- Reference line "A recent cut in the interest on loans announced
by banks."
(ii) Technological Environment- Reference line: "Developed cars to be powered by fuel
produced from garbage".
Explanations of aforementioned dimensions of business environment
i) Economic Environment: It comprises the economic variables such as interest rates,
income, stock market indices that affect the functioning of the enterprises. For example,
an increase in the income of the consumers increases the demand for goods and services
of the enterprises. Similarly, a fall in the interest rates of loans for consumer durables
increases the spending capacity, and thereby increases the demand for such products.
(ii) Technological Environment: Technological environment comprises the technological
changes and improvements. For example, introduction of computers and the Internet has

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changed the working style of the organisations today. Similarly, continuous improvement
and innovations in the technology used in the production improves the quality of
production. While on the one hand, improvement in technology provides new business
opportunities for the enterprises; on the other hand, it is a threat for the enterprises
using obsolete technology.
Answer17: (a) In Steelo Ltd., informal organisation permits the flow of communication in all the
directions.
(b) The another advantage of informal organisation is fulfilment of social needs. An
informal organisation 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 organisation.
(c) The two values that Steelo Ltd. wanted to communicate to the society are given below.
(i) Fulfilling social responsibility
(ii) Working for benefits of employees
Answer18: The nature of 'principles of management' are as follows:
i. Universally applicable: Management principles can be applied anywhere and everywhere
by all types of organisations irrespective of their size, nature and region. However, the
degree of their applicability would definitely be governed by such factors as the nature of
business, sacle of operations etc.
ii. Guidelines: Management principles act as guidelines and are considered to be the general
premises for decision making. However, they do not provide straitjacket solutions to
problems as real life business situtations are cumbersome and dynamic, they call for
specialised actions.
iii. Formed by experimentation: Management principles have been developed over years of
research and experimentation and are technical. They pertain to different working
situations and can be modified by the manager as per the situations and the
requirements.
iv. Flexible: Management principles are not rigid. They are flexible enough to be used and
molded by the manager as per the need of the hour. This makes application of
management principles in diverse business situations.
Answer19: The following are the various methods through which floating of new issues can be
done.
(i) Offer through Prospectus: The most commonly used method for raising funds in
primary market is offer through prospectus. It involves inviting the subscriptions from
public by issue of prospectus. A prospectus is published as advertisements in newspapers
and magazines, etc. Prospectus provides such information as the purpose for which the
fund is being raised, companys background and future prospects, its past financial
performance, etc. Such information helps the public and the investors to know about the
company as well as the potential risk and the earnings involved. Such issues need to be
listed on one of the stock exchanges and should be in accordance with the guidelines and
rules listed under the Companies Act and SEBI disclosure.
(ii) Offer through Sale: As against offer through prospectus, under the offer through sale
method, the company does not issue securities directly to the public rather they are
issued through intermediaries such as brokers, issuing houses, etc. That is, under offer
through sale securities are issued in two steps, first the company sells its securities to the
intermediaries at the face value and later the intermediaries resell the securities to the
investing public at a higher price than the face value to earn profit.

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(iii) Private Placement: Under this method, the securities are sold only to some selected
individuals and big institutional investors rather than to the public. The companies either
allot the securities themselves or they sell the securities to intermediaries who in turn
sell them to selected clients. This method saves the company from various mandatory or
non-mandatory expenses such as cost of manager fees, commission, underwriter fees, etc.
Thus, the companies which cannot afford the huge expenses related to public issue often
go for private placement.
(iv) Rights Issue: Under the Companies Act 1956, it is the right of the share holders of a
company to subscribe to the new shares issued by it. The existing share holders are
offered subscription of new shares of the company in proportion to the number of shares
possessed by them.
Answer20: (a)
(i) Informal Communication- "Colleague sent a text message to his immediate superior"
"Mr. Narain sent a text message to the employees of organisation requesting them to
donate blood".
(ii) Formal Communication- "When the General Manager came to know about it, he ordered
for fumigation in the company premises and cleanliness of the surroundings"
Note: Text messages and face to face conversations are considered as informal
communication.
(b) The features of informal communication are as follows:
(i) Communication that flows without following the formal defined path
(ii) Arises out of social interactions among the employees
(c) The two values that are being communicated to the society are as follows:
(i) Cleanliness of the surroundings
(ii) Sympathy for employees
Answer21: The different types of plans discussed in the paragraph are listed below:
1. Objective- "One of her objective was to earn 10 % profit on the amount invested in the
first year". An objective is the goal that a management desires to achieve. By stating the
objective, the management broadly defines what is to be done.
2. Policy- "Raw materials like fruits, vegetables, spices etc. will be purchased on three
months credit from farmers cultivating organic crops only". A policy is a general statement
that aims at channelling the efforts of the organisation in a particular direction. It forms
the general response or a course of action to be followed in a particular situation.
3. Procedure- "Decided to follow the steps required for marketing of the products through
her own outlets". Procedure is a set of routine steps defined in a chronological order that
are to be followed for the enforcement of a policy.
4. Method- "The exact manner in which the production activities are to be carried out"
A method defines the way or manner in which a particular task can be performed. It
considers one step of an entire procedure and defines the step to be taken for the
completion of the given task.
5. Rule- "Penalty of Rs 100 per day for not wearing the caps, gloves and aprons was
announced". A rule refers to a standard or specific statement that gives information about
what is to be done and what is not to be done. Rules are the simplest type of plans.
6. Budget- "Mohan also prepared a statement showing the number of workers that will be
required in the factory throughout the year". Budget refers to a numerically expressed
financial statement that defines the targets to be achieved & policies to be followed in a
specific period.

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Answer22: Planning and controlling are closely interrelated functions of management. On one
hand, Planning refers to the psychological process of thinkingand deciding about
what is to be done and how it is to be done. On the other hand, controlling refers to the
process of managing and evaluating the work done in accordance with the standards
and taking corrective measures, if there are any deficiencies. The various objectives and
policies as formulated under planning serve as standards against which the actual
performance is evaluated. If there are no standards, no objectives, there is nothing to
control. That is, if the managers do not know what the final objective is, they do not have
any standard against which they can judge the current performance and deficiencies.
Similarly, planning without controlling holds no meaning. Once the plans are formulated,
it becomes necessary to monitor and evaluate whether the performance is as per the
desired plans. Controlling is a requisite for measuring whether the plan is being properly
implemented, if there are any deficiencies in the work and if there is a need for taking
corrective actions in order to achieve the planned goals. Hence, while on one hand,
planning is a prerequisite for controlling, on the other hand, controlling is
incomplete without planning. Both are inseparable functions that support each other
towards the achievement of the goals of the organisation.
Answer23: (a) The aspect neglected by the marketer in the above case is Labelling.
(b) The following points highlight the functions of labelling.
(i) Description of use and contents: The main function performed by labelling is to provide
the description about the product regarding its use, application, cautions, content, etc. For
example, on the bottle of a shampoo, the contents are written, along with the cautions
such as keep away from children below the age of 10. Similarly, on food products such as
maggiecuppa mania, a picture of noodles is there describing its appearance. Along with
this, the ingredients and procedure of making it is also stated.
(ii) Identification and Differentiation: A label helps in easy identification of the product. It
helps the consumers to differentiate their favourable products from other products. For
example, in a potato chip product, a man eating potato chips is imprinted for
identification. A label also provides other valuable information such as name or address
of the manufacturer, net weight, maximum retail price, batch number, etc.
(iii) Standardising and Grading: A label also helps in setting grades for a product. This
helps the marketers to classify the product in different categories based on certain
specific quality or features. For example, a brand of face-cream comes in different
categories such as oily skin, dry skin and normal skin.
(iv) Promotes the Production: An attractive label helps the marketers in promoting the
product as well. It helps in attracting more customers towards the product. For example,
for maggie noodles, the label says ''Taste bhi, Health bhi''. Herein, label plays an
important role in highlighting the product and promoting its sale.
(v) Information Required for Law: Label also provides and mentions the information
which are required to be mentioned as per the law. For example, on a packet of tobacco it
is written 'chewing tobacco is injurious to health.
Answer24: (a) Profit before Interest and tax = Rs 8,00,000 (Given)
10

Interest on 10% debentures = Rs 4,00,000 4, 00, 000

100

Profit before Tax=Profit before Interest and TaxInterest

=8,00,0004,00,000=Rs 4,00,000

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10

Tax @ 40% = Rs 1,60,000 4, 00, 000

100

Profit after Tax=Profit before TaxTax

=4,00,0001,60,000=Rs 2,40,000
Profit after tax
2, 40,000
EPS =
=
=0.4
Number of Equity Shares 6,00, 000
The shareholders incurred loss as EPS falls from 0.5 to 0.4
Note: The face value of equity shares is assumed to be Rs 10 each. Hence, number of equity
shares is 6,00,000.
(b) The three factors that favour the issue of debentures by the company as part of its capital
structure are given below.
1. Tax deductibility: Interest paid by the company to its debentures is tax deductible. In the
above scenario, the company is paying tax @ 40%. Thus, it is beneficial for the company
to issue debentures.
2. Say in management: In the given scenario, the company already has a share capital of Rs
60,00,000. Issuing more shares will dilute the control of management. Thus, companies
that are apprehensive of the dilution of control opt for more of debt and less of equity.
3. Relatively low cost: For a company, cost of raising capital through debentures is
relatively lower than that through equity. This is due to assurance (of rate of returns)
and guaranteed repayment (of debenture amount at maturity) that debenture holders
require lower rate of returns. Besides this, interest amount payable to debenture
holders is deductible expense. This is to say that interest amount is deducted from the
company's earnings and then the net amount is used for calculation of tax liabilities.
Hence, companies prefer to opt for debentures, as higher use of debt, lowers the over-all
cost of capital with cost of equity remaining
Answer25: The following points highlight the importance of management.
1. Achievement of goals: The efforts of all the individuals must be organised and directed
towards the common goals of the organisation. Managers of an organisation help in
achieving the common goals by listing down what is to be done, how is to be done and by
whom it is to be done.
2. Increases efficiency: The managers of an organisation aim at increasing efficiency. An
increase in efficiency implies minimising the costs and increasing the productivity
through the optimum utilisation of resources. All possible ways and methods are adopted
to ensure cost effective dicharge of allocated tasks.
3. Creates dynamic organisation: Businesses today operate in a constantly changing
business environment. It is generally observed that individuals are reluctant to changes,
therefore it is the managers who help overcome resistance and motivate people to adapt
to the changes in external factors such as political, social, environmental and economical
changes.
4. Development of society: Management must contribute to the development of society by
producing good quality products at fair prices, using honest selling practices, etc. This
will help business enjoy a comparative advantage over the rival firms in a competitive.

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