CBSE Class 12 Business Studies Solved Question Paper- 2020 Set 1

Business Studies (Code No.  66/C/1)

Time allowed: 3 hours
Maximum Marks: 80

General Instructions:
Read the following instructions very carefully and strictly follow them :
(i) This question paper comprises five sections  A, B, C, D and E. There are 34 questions in the question paper. All questions are compulsory.
(ii) Section A – Question nos. 1 to 20 are very short answer type questions, carrying 1 mark each.
(iii) Section B – Question nos. 21 to 25 are short answer type I questions, carrying 3 marks each.
(iv) Section C – Question nos. 26 to 28 are short answer type II questions, carrying 4 marks each.
(v) Section D – Question nos. 29 to 31 are long answer type I questions, carrying 5 marks each.
(vi) Section E – Question nos. 32 to 34 are long answer type II questions, carrying 6 marks each.
(vii) Answers should be brief and to the point.
(viii) There is no overall choice in the question paper. However, an internal choice has been provided in one question of 3 marks, one question of 4 marks, three questions of 5 marks and two questions of 6 marks. Only one of the choices in such questions have to be attempted.

Section-A

1. The objective of management which consistently creates economic value for various constituents of society is:
(A) Organisational objective
(B) Social objective
(C) Personal objective
(D) Both Social and Personal objective

Answer: (B) Social objective

Social Objectives refer to the objectives which are desired to be achieved for the benefit of society. Every organisation has a social responsibility to fulfil during its existence. Some of the social obligations of an organisation include implementing environment friendly practices in the production process, providing basic amenities to employees such as healthcare, education, etc.

2. Which of the following is a component of economic environment?
(A) Concern with quality of life
(B) Rates of saving and investment
(C) Extent of government intervention in business
(D) Birth and death rates

Answer: (B) Rates of saving and investment

Economic Environment refers to all the forces that have an economic impact on business activities. We know that business is an economic organization. Therefore, its survival and growth are dependent on economic factors. The economic environment includes various factors, such as inflammation, interest rate, price level, money supply in the market, etc.

3. The principles of management are said to be flexible as:
(A) they aim at influencing behaviour of human beings.
(B) they are general guidelines to action but do not provide readymade solutions to management problems.
(C) they can be modified by the manager when the situation so demands.
(D) their application is dependent upon the prevailing situation at a particular point of time.

Answer: (D) their application is dependent upon the prevailing situation at a particular point of time.

Principles of management are not rigid. These principles can be modified as per the need of the organisation. They are flexible and give managers enough discretion to modify and apply them as per the situation.

4. State, giving reason, whether the following statement is true or false:
‘‘A rule is the prescribed way or manner in which a task has to be performed considering the objective.’’

Answer: False; A method is a prescribed way ,or manner in which a task has to be performed.

5. Which of the following is not a step in the process of planning?
(A) Making assumptions about the future.
(B) Evaluating different proposals in light of the objectives to be achieved.
(C) Allocation of jobs to members of each department.
(D) Seeing whether activities are performed as per schedule or not.

Answer: (D) Seeing whether activities are performed as per schedule or not.
Under the function of directing, the managers need to check whether activities are performed as per schedule or not, therefore it is not a step in the process of planning.

6. For delegation to be effective, it is necessary that authority granted must be commensurate with assigned __________ .

Answer: Responsibility

7. Identify the type of organisation structure from the organisational chart given below of Swastika Industries Ltd. located in Uttarakhand :

Answer: Swastika Industries Ltd. have Divisional Organisation Structure, as jobs related to one product are grouped under one department.

8. Which statement is not correct, with respect to ‘Organisation Structure’?
(A) Ensures coordination among human and physical resources.
(B) Ensures smooth flow of communication.
(C) Specifies relationship between people, work and resources.
(D) Establishes standards for controlling.

Answer: (B) Ensures smooth flow of communication.

Organisation Structure allocates authority and responsibility; lays down the pattern of communication and coordination; facilitates proper control over the operation of a business enterprise; facilities the growth and development of the enterprise and makes an organisation adaptable to changes.

9. Using external sources for filling vacant positions :
(i) Gives a wider choice.
(ii) Simplifies the process of selection.
(iii) Instils a competitive spirit among the existing employees.
(iv) Does not infuse fresh talent in the organisation.

Choose the correct option from the following :
(A) (i) and (ii)
(B) (i) and (iii)
(C) (i), (iii) and (iv)
(D) (ii) and (iv)

Answer: (B) (i) and (iii)

External sources for filling position provides wider choice, qualified personnel, fresh talent and induces competitive spirit among the existing employees.

10. ____________ test is a measure of an individual’s potential for learning new skills.
(A) Personality
(B) Aptitude
(C) Intelligence
(D) Interest

Answer: (B) Aptitude
Aptitude tests are conducted to determine ability and capacity of the candidate to learn the skills required to perform the specified jobs. These tests also help to know how a candidate will perform in future.

11. State the objective of financial management.

The primary and most important objective of financial management is to maximize wealth of equity shareholders, which means maximising the market price of equity shareholders. 

12. Organisations which choose to diversify their operations require__________ fixed capital. (more/less).

Answer: more

13. ‘Temptations’ is a food joint in Imperial Mall in Bengaluru. It is becoming popular among students and working people due to healthy, on-the-go dishes on its menu like ‘Paneer Wrap’, ‘Chickpeas Salad’, ‘Grilled Sandwiches’, etc. It has now decided to open two new branches in other parts of Bengaluru.
Which financial decision has been discussed in the above case?
(A) Long-term investment decision
(B) Short-term investment decision
(C) Dividend decision
(D) Financing decision

Answer: (A) Long-term investment decision

The size of assets, profitability, and competitiveness are all influenced by investment decisions. These decisions generally involve vast amounts of investment and are mostly irreversible except when there is a huge cost. Therefore, once the decisions are made, it is almost impossible for a business to avoid such decisions, and they need to be managed with extreme caution.

14.  The process of classification of products into different groups on the basis of their important characteristics refers to which of the following marketing functions?
(A) Grading
(B) Standardisation
(C) Product Designing
(D) Marketing planning

Answer: (A) Grading
The process of classification of products into different groups on the basis of its characteristics such as quality, size, etc. Grading ensures that goods belong to a particular quality and helps in realising higher prices for high-quality output. 

15. While the product _____________ sets the lower limit of the price, the utility provided by the product sets the upper limit of price, which a buyer would be prepared to pay.

Answer: cost

16. State, giving reason, whether the following statement is true or false :
‘‘Advertising refers to short-term incentives which are designed to encourage the buyers to make immediate purchase of a product.’’

Answer: False; Sales promotion refers to short-term incentives which are designed to encourage the buyers to make immediate purchases of a product.

17. Who among the following is not considered a consumer under the Consumer Protection Act, 1986?
(A) A person who buys any goods for a consideration which has been paid.
(B) A person who avails of any service for a consideration which has been promised.
(C) A person who avails of a service for a commercial purpose.
(D) Any user of goods when such use is made with the approval of the buyer.

Answer: (C) A person who avails of a service for a commercial purpose.

Any individual who obtains any goods or avails service for resale or commercial use is not considered as a consumer under the Consumer Protection Act, 1986.

18. Aarushi purchased a pack of biscuits. When she opened it, she felt the biscuits were stale. She carefully read the label on the pack of biscuits which mentioned: ‘‘If you are not satisfied with the product quality, write to our Customer
Care Cell at Bell Foods Pvt. Ltd. B/321, Jalandhar, Punjab.’’ The biscuit company has set up its own consumer service and grievance cell to promote and protect the following right:
(A) Right to Safety
(B) Right to be Heard
(C) Right to be Informed
(D) Right to Consumer Education

Answer: (B) Right to be Heard

Right to be Heard states that a consumer has the right to be heard or advocate his/her interest or represent himself/herself. In simple terms, if a consumer has been exploited by a business or has a complaint regarding a business, good, or service, then he/she has the right to be heard and assured that his/her interest would be taken into consideration.

19. The package of KRM Rawa Idli Mix describes the procedure of cooking idlis in three easy steps. It also specifies its ingredients, instructions for storage and serving.
The function performed by the label in the above case is:
(A) Describing the product and specifies its contents.
(B) Identification of the product or brand.
(C) Helping in promotion of products.
(D) Providing information required by law.

Answer: (A) Describing the product and specifies its contents.

Since the customers cannot meet each and every customer personally, labelling is used to communicate and share information about the product to the customer. All the information related to the product such as content, price, instructions to use, etc., is printed on the product by the manufacturer.For example,labels of ready-to-eat food products have a complete description of how to serve the food.

20. Arnav has recently started a business to sell computers. He hired a shop in Nehru Place in New Delhi, where he assembles various components to make computers and supplies them as per order. He performs a series of composite but separate functions simultaneously and ensures that computers are delivered in time as per orders. These functions are performed by all managers at all times.
The feature of management highlighted above is :
(A) Management is a continuous process.
(B) Management is pervasive.
(C) Management is dynamic.
(D) Management is a group activity.

Answer: (A) Management is a continuous process

Management is a continuous process. It means that the process of business management goes on until the company exists, as it helps in achieving the organisational goals. Every manager of an organisation has to perform the different functions of management in a series (planning, organising, staffing, directing, and controlling).

Section-B

21. Vaibhav Sharma was working as the Production Manager in Crescent Pharmaceuticals Pvt. Ltd. To get his son admitted in school, he wanted to take leave from the office but on the same day, an important meeting with the Chief Executive Officer (CEO) of the company was scheduled to discuss about some new medicines to be manufactured. Considering the significance of the meeting, he did not take leave. The CEO appreciated his exemplary behaviour as he gave priority to the organisational interest over his personal interest.
Name and explain the principle of management being followed by Vaibhav Sharma in the above case.

Answer: Subordination of Individual Interests to General Interests Principle is being followed by Vaibhav Sharma.

According to this principle, the interest of the organization as a whole must prevail over the interest of the individual. It must be the interest of the organization that should be placed above the interest of employees. It is the duty of the manager to reconcile them. If reconciliation is impossible, then general interest must supersede individual interest. A manager must sacrifice his interest. Manager can achieve their objectives when the organization recovers from financial crises. For example, there is a company that wants maximum output from its employees by providing less salaries. There are employees on the other hand who want to get the maximum salary while working the least. In both situations, the interests of the company will supersede the interest of any one individual. As the interests of the workers and stakeholders are more important than the interests of any one person. 

22. Explain the following as significance of ‘organising’ function of  management:
(a) Benefits of specialisation
(b) Clarity in working relationships
(c) Development of personnel

     OR

Explain the following types of plans:
(a) Objectives
(b) Strategy

Answer: 

Organising refers to a process consisting of a series of steps to identify and group various activities, collect or assemble various resources and establish authority relationships with responsibility amongst job positions.

The significance of organising function of management are:

(a) Benefits of specialisation: In an organisation, work is divided into units and departments. This division of work leads to specialization in various activities of the concern. The entire philosophy of the organisation is based on the concept of division of work into compact jobs. This leads to systematic allocation of jobs amongst staff, which enhances productivity and reduces the workload. Division of work refers to assigning responsibility for each organisational component to a specific individual or group. This, in turn, leads to specialization, efficiency and speed in job performance.

(b) Clarity in working relationships: After identification of a job, organising also clarifies the authority and responsibility of individuals of different departments. It is a means of creating coordination among different departments of enterprises. It aims at creating clear-cut responsibility, and authority relationships amongst different levels and ensuring cooperation amongst individuals and groups. Harmony of work is brought by the high level of management. Every employee knows his superior from whom he has to take the order, and to whom he has to report. This working relationship helps in fixing responsibility and helps to avoid confusion.

(c) Development of personnel: In the process of organising, a managerial person is trained to acquire a wide experience in diverse activities through delegation of authority. Delegation allows manager to reduce their work by assigning future jobs to subordinates. It also gives time to concentrate on important work. The delegation also develops a sense of responsibility in the subordinates and motivates them to do more challenging work.

OR

A management plan is a global plan that provides the objective of any organization’s project. A plan certainly defines responsibilities, roles, etc., to ensure the achievement of the targeted goal. A plan is a resource that everyone in the firm can use, be it the top-level manager or the low-level manager.

The types of Plans are: 

(a) Objectives: Objectives are specific targets within the general goal to achieve a certain task. Thus, objectives are specific with support in the attainment of goals. The process of planning includes setting up objectives. The planning stage includes courses of action and identifies the results that the company desires. These are usually set up by the top level. All organizations large or small can identify problems and establish overall goals for their business, but they need specific objectives to progress. For example, the managers of a department may have the objective to increase sales by 15%. This becomes an objective of selling more units for his employees. Objectives refer to purposes or aims that an organization wants to achieve at different periods. Activities of an organization are directed towards the objectives. In other words, objectives indicate the destination of the organization.

(b) Strategy: The term strategy is mostly used in military science and games. But in view of growing competition and a rapidly changing environment, now it has become equally relevant to the business organization. In business, it refers to a comprehensive  (i.e., determining long-term objectives, adopting a course of action, and allocation of resources)  and an integrated plan, which indicates the desired future of the organization. It is very often said that a proper strategy is the blueprint of an organization’s desired destination. It is an elaborate, systematic and special type of plan, which is formulated to meet the challenges forwarded by the competitors or other external factors, such as changes in the economic, political, social, legal, and technological environment. It involves preparing itself for meeting unforeseen factors.

23. Explain the following steps in the process of staffing:
(a)  Performance Appraisal
(b) Promotion and Career Planning 
(c) Compensation

Answer: Staffing is that part of management which is concerned with obtaining, utilizing, and maintaining capable people to fill all positions in the organization from top-level to bottom level. It involves the scientific and systematic procurement, allocation, utilization, conservation, and development of human resources.

The steps in theprocess of staffing are as follows:

a)  Performance Appraisal: After training the employees and having them on the job for some time, there should be an evaluation done on their performance. Every organization has its means of appraisal whether formal or informal. Appraisal refers to the evaluation of the employees of the organization based on their past or present performance by some pre-decided standards. The employee should be well aware of his standards and his superior is responsible for proving feedback on his performance. The process of performance appraisal thus includes specifying the job, performing appraisal performance, and providing feedback. 

(b) Promotion and Career Planning: It has now become important for all organizations to deal with career-related issues and promotional routes for employees. The managers should take care of the activities that serve the long-term interests of the employees. They should be encouraged from time to time, which will help the employees to grow and find their true potential. Promotions are an essential part of any employee’s career. Promotion refers to the transferring of employees from their current positions to a higher level increasing their responsibilities, authority and pay.

(c) Compensation: Every organization needs to set up plans for the salary and wages of the employees. There are several ways to develop payment plans for employees depending on the significance of the job. The worth of the job needs to be decided. Therefore, all kinds of payments or rewards provided to the employees are referred to as compensation. The compensation may be in the form of direct financial payments, such as salary, wages, bonuses, etc., or indirect payments like insurance or vacations provided to the employee. 

24. Currently, the banking sector in the Indian economy is facing lots of problems. The rates of interest that banks are paying on deposits have sharply decreased; as a result banks are able to collect lesser amounts of deposits. Due to the policies of the Reserve Bank of India, lending rates have also decreased. The automobile industry is also facing a lot of problems and thus they have also reduced the prices of cars. This has encouraged people to take car loans from banks as the interest rates on loans, along with prices of cars in the automobile sector are declining. Due to this position of tight liquidity, ‘The Oberoi Bank Ltd.’ decided to raise funds by issuing an unsecured, short-term instrument which could be purchased by corporations, companies and individuals.

(a) Identify and explain the money market instrument used by ‘The Oberoi Bank Ltd.’ to raise funds.
(b) Also explain the money market instrument used by the banks to maintain Cash Reserve Ratio.

Answer:(a) Certificate of Deposit is used by ‘The Oberoi Bank Ltd.’ to raise funds.

A time or deposit that can be sold in the secondary market is known as a Certificate of Deposits (C.D.). It can be issued by a bank only and is a bearer certificate or document of title. A Certificate of Deposit is a negotiable and easily transferable instrument. The banks issue the Certificate of Deposits against the deposit kept by the institutions and companies. The time period of a Certificate of Deposits ranges from 91 days to one year. CDs can be issued to companies, corporations, and individuals during a period of tight liquidity. It is that time when the bank’s deposit growth is slow, but the credit demand is high.

(b) Call Money is short-term finance whose maturity period varies from 1 day to 15 days.It is used mostly by banks. As per RBI guidelines, commercial banks are required to maintain a minimum cash balance with RBI, known as Cash Reserve Ratio(CRR). CRR is changed by RBI from time to time, which affects the availability of funds with commercial banks to be given as loans. Call money is used by banks to maintain the CRR.Besides banks, other organisations like mutual funds companies, insurance companies, etc. also deal with call money. The market of call money takes place over the telephone. The liquidity of call money is just next to cash. 

25. ‘Stay Fit’, a probiotic drink was launched in the market by Dabal India Ltd. and is available in various cities across the country. Doctors are recommending it as it is very useful for the stomach. The company is also using various tools to inform and persuade customers about its product. It has recently started free distribution of its samples to encourage the
customers to know about its benefits to buy this probiotic drink in future. The company has also appointed a large number of salespersons, who contact the prospective buyers and communicate with them to make sales. This way, the company is able to develop personal rapport with its customers. In order to create awareness and to increase its popularity among school children, it also organises workshops for students and teachers. It also arranged visits of students and teachers to the factory to create awareness about the standards of hygiene adopted in processing and packaging, etc. This helps the company to build a positive image of its product in the society. This way the company is using a combination of communication tools to inform and persuade customers about their firm’s product.
Identify and explain these tools.

Answer: 

1. Personal Selling: Personal Selling is used as company has appointed a large number of salespersons, who contact prospective buyers and communicate with them to make sales. The process of informing customers and persuading them to purchase products through personal communication is known as Personal Selling.It is a two-way communication and involves direct face-to-face communication. Salespersons are appointed by companies to create product awareness and preferences with the aim of making sales.Personal selling is flexible as the sales person can change the presentation of the product according to the needs of the purchasing situation. There is direct and face-to-face contact between salespersons and customers in personal selling, direct and immediate feedback is given by the customers. 
   
2. Sales Promotion: The company has distributed free samples to encourage customers to know about the product. This comes under Sales Promotion.Short-term incentives, which are offered to encourage the buyers to make an immediate purchase of a product or service is known asSales Promotion. Sampling is distribution of free samples of a product through sales representatives. Usually, daily products, like detergents, soaps, toothpaste, etc., are distributed using this method. This method is generally used at the time of launch of a new product by a company. For example, get mini lipstick free with Maybelline New York Lipstick.
   
3. Public Relations: Public Relations is used by the company as it organises workshops for students and teachers. It also arranged visits of students and teachers to the factory to create awareness about the standards of hygiene adopted in processing and packaging, etc.
   The deliberate, planned, and sustained effort to establish and maintain mutual understanding between an organisation and its public is known asPublic Relations It is a continuous activity and its aim is to create and manage relations with the public successfully. 

Section C

26. The Government of India, in an effort to eliminate plastic waste, imposed a nationwide ban on single-use plastic. The ban would most likely target plastic cutlery, straws, cups and glasses. As a result of this ban, the businesses have been forced to change their practices. ‘Viman Airlines’ decided to stop giving small water bottles on its flights. Various firms have come up in the country that are making biodegradable plastic out of starch, wheat hay or petrochemicals. Thus competition in this upcoming industry is immense. Businesses are also focusing on developing techniques to produce alternatives for plastic bags. ‘Carlos Technologies Ltd.’, a leading engineering company, has planned to design and deliver hi-tech machines that can scale up production of bags made from newspaper to replace plastic bags. Many companies are placing orders for such machines. This has added challenges before smaller firms making paper bags. In various enterprises, employees are being trained to operate such hi-tech machines. This will provide human resource with higher competence. Customers have also become more demanding due to increased awareness and are forcing sellers to adopt bags which are not made of
plastic. 

Identify and explain the impact of the above Government policy on Business and Industry.

Answer: The impact of the above government Policy on Business and Industry are as follows:

1. Increasing competition:  Competition is increasing as various firms have come up in the country that are making biodegradable plastic out of starch, wheat hay or petrochemicals. 
2. More demanding customers: Increased competition in the market also increased the choice of customers. Customers have also become more demanding due to increased awareness and are forcing sellers to adopt bags which are not made of
   plastic. 
3. Rapidly changing technological environment: There is rapidly changing technological environment as businesses are focusing on developing techniques to produce alternatives for plastic bags. They have planned to design and deliver hi-tech machines that can scale up production of bags made from newspaper to replace plastic bags. Many companies are placing orders for such machines. 
4. Necessity for change: There is a necessity to change as every firm is coming up with the idea of producing bio-degradable plastics. Even Viman Airlines has stopped using plastic water bottles on its flights.
5. Need for developing human resources: Employees are being trained to operate hi-tech machines, which will provide human resource with higher competence.

27. Alka is working in the Accounts Department of ‘Modern Locks Ltd’. Her mother is not well and to attend to her she wanted to take leave for one week. For this, she went to the Senior Accountant, Manoj and discussed her problem. At that time Manoj was simultaneously checking the Balance Sheet of the company. Since his mind was preoccupied in some work, he did not listen to Alka attentively and could not understand her problem.
Alka was quite disappointed with the behaviour of Manoj.
(a) Identify the type of communication barrier discussed above.
(b) Also explain any three barriers of the same type.

Answer: (a) The communication barrier discussed above is Lack of Attention. Communication can be less effective, and the message can be misunderstood if proper attention is not given to it. This inattention may arise due to the preoccupied mind of the receiver. For example, a superior gave instructions to operate a new software, however, the subordinate was preoccupied with other personal issues. Such lack of attention makes the communication process one-way and ineffective.

(b) Barriers which arise on the account of emotional and psychological status of the sender and receiver of the message are known as Psychological Barriers. For example, a person who is under stress cannot communicate properly.

Some of the common forms of Psychological Barriers are as follows:

• Premature Evaluation: The tendency of forming a judgement before listening to the entire message is known as premature evaluation. This distorts understanding and acts as a barrier to effective communication. This can also lead to prejudices against communication.
• Loss by Transmission and Poor Retention: There is loss of or transmission of inaccurate information when communication passes through various levels or channels in the organisation. It is more common in the case of oral communication. Poor retention also acts as a barrier when people are unable to retain the information for a long time.
• Distrust: Lack of mutual trust between the sender and the receiver also acts as a barrier to communication. Parties involved in communication cannot understand the message in an original sense when they do not believe each other.

28. Explain any four methods of floatation of new issues in the primary market.

OR 

Explain any four factors affecting ‘Dividend decision’.

Answer: A market in which the securities are sold for the first time is known as a Primary Market. It means that under the primary market, new securities are issued from the company. Another name for the primary market is New Issue Market. This market contributes directly to the capital formation of a company, as the company directly goes to investors and uses the funds for investment in machines, land, building, equipment, etc.

The methods of floatation of new issues in the primary market are:

1. Public Issue through Prospectus: The first method of floatation of securities in a primary market is ‘Public Issue through Prospectus’. Under this method, a company issues a prospectus to inform the general public and attract them to invest in the company. The prospectus of a company contains information regarding the purpose for which it wants to raise funds, its past financial performance, its background, and future prospects. The information provided in the prospectus helps the general public, get to know about the earning potential of the company and the risks involved in investing in the company. Based on this information, the public decides whether or not they want to invest in the company. With the help of an IPO, a company can easily approach a large number of persons and can approach the public at large. Sometimes under this method, the companies take help of the intermediaries like underwriters, brokers, and bankers for raising capital from the general public.

2. Offer for Sale: The second method is ‘Offer for Sale’, and under this method, the new securities are offered to the general public not by the company directly, but by an intermediary who has bought a whole lot of securities from the company. These intermediaries are generally the firms of brokers. As the intermediaries offer the new securities to the general public, the company is saved from the complexities and formalities of issuing the securities directly to the public.

3. Private Placement: It is a method in which a company sells securities to an intermediary at a fixed price, and then the intermediaries sell these securities to selected clients at a higher price instead of the general public. The company issuing securities issues a prospectus providing details about the objective and future prospects of the company so that the reputed clients will prefer to purchase the securities from the intermediary. The selected clients to whom securities are issued by the intermediaries are LIC, UTI, General Insurance, etc. 

4. Right Issue (For Existing Companies): Under this method, new shares are issued to the existing shareholders of a company. It is known as the right issue because it is the pre-emptive right of the shareholders that the company must offer them the new issue of shares before subscribing them to outsiders. The existing shareholders have the right to subscribe to the new shares in the proportion of the shares they already hold. 

OR 

There are three major decisions that every financial management takesinvestment decision, financial decision, and dividend decision. Dividend is that portion of the profit that is distributed to the shareholders. The decision involved here is how much of the profit earned by the company after paying the taxes is to be distributed to the shareholders. It also includes the part of the profit that should be retained in the business.

There are various factors that affect the dividend decision. These are as follows:

1. Amount of Earnings: Dividends are paid out of the current and previous year’s earnings. More earnings will ensure greater dividends, whereas fewer earnings will lead to the declaration of a low rate of dividends.
   
2. Stability of Earning: A company that is stable and has regular earnings can afford to declare higher dividend as compared to those company which doesn’t have such stability in earnings. 
   
3. Stability of Dividend: Some companies follow the policy of playing a stable dividend because it satisfies the shareholders and helps in increasing companies reputation. If earning potential is high, it is declared as a high dividend, whereas if the earning is temporary or not increasing, then it is declared as a low or normal dividend.
   
4. Growth Opportunities: Companies with growth opportunities prefer to retain more money out of their earnings to finance the new project. So, companies that have growth prospects in near future will declare fewer dividends as compared to companies that don’t have any growth plan.
   

Section D

29. Explain any five characteristics of coordination.

OR

Is management a profession? Explain. 

Answer: Coordination is the force that connects all managerial functions and ensures the smooth and efficient functioning of an organization. All the activities of an organization such as purchase, production, sales, and finance are connected through this link of coordination, which enables and helps in the continuous working of an organization.

Characteristics of Coordination are as follows: 

1. Coordination assimilates group efforts: Coordination combines diverse business activities into a purposeful group activity, ensuring that all people work in one direction to achieve organizational goals. It provides a common focus to
   group effort so that the performance is as it was planned and scheduled. 
2. Coordination assures unity of action: Coordination directs the activities of different departments and employees towards the achievement of common goals and brings unity in individual efforts. It performs as the binding force between
   departments and assures that all action is aimed at achieving the organizational goals. In an enterprise, the production department needs to coordinate its work with the sales department so that production takes place to the demand in the market. 
3. Coordination is a continuous process: Coordination is essential in every stage of managerial functions. Starting right from the stage of planning, it continues till controlling. It is a continuous process that is required at all levels, in all the departments till the organization continues its operation. In an enterprise, which makes shoes, first, they need to come up with a good plan. Then they have to make sure that there is an adequate workforce and continuously monitor whether production is proceeding according to plans. The marketing department also needs to prepare its promotional and advertising campaigns so that it can increase its sales.
4. Coordination is an all-pervasive function: Coordination is in nature. It integrates the activities of all levels and departments as they are dependent on each other to maintain balance in the organization. To achieve organizational objectives harmoniously, the purchase, production, and sales departmental efforts have to be coordinated properly. For example, in a textile company, the purchasing department is responsible for procuring fabric. Then the production department performs their task and finally, sales can take place. If the quality of fabric purchased is of poor quality or is not according to the specifications of the production department, further sales will also decline, which will lead to loss. In the absence of coordination, there is a lot of chaos, delays, and duplication in the organization.
5. Coordination is the responsibility of all managers: In an organization, every manager needs to perform the function of coordination. It is equally important at all three levels of management, i.e. top, middle and lower levels. Top-level managers need to coordinate with their subordinates to make sure that all the policies for the organization are carried out properly. Middle-level management is the one that coordinates with both the top level as well as the lower-level managers. The operational level or the lower level management coordinates the activities of its workers to ensure that work proceeds according to plans.

OR

Management as a Profession

Profession means a vocation requiring specialized knowledge, practical training, service motive and a code of conduct. A Profession is an addicted group of individuals who obey ethical standards and hold themselves out and are accepted by the public as having special knowledge and skills.

The essential features of a profession are:

• Specialized Knowledge:  All professions are based on a well-defined body of knowledge that can be acquired
  through instruction.
• Formal Education and Training: Almost all professions provide specialized education and training in their respective field. The professionals have to complete their education and training to get a job. There are various universities and formal institutions for attaining a complete education. For example, a doctor needs to complete his formal education and training to practice his knowledge before providing his services to the people. 
• Service Motive: The basic motive of a profession is to serve their client’s interests by rendering dedicated and committed service. All professionals are also anticipated to serve society rather than simply earn profit.
• Statutory Body: A legally recognized body regulates all professions. All professions are affiliated with a professional association that regulates entry, grants certificates of practice, and formulates and enforces a code of conduct.

We can say management has some features of the profession such as:

1. Management has a transmittable body of specialized knowledge. Management is growing all over the world as a discipline. It is based on a systematic body of knowledge comprising well-defined principles based on a variety of business situations. This knowledge can be attained at different colleges and professional institutes and through several books. 
2. Some specialized institutions provide education and training in management. Having completed their education and training, students get placed as managers. Management is taught at different institutions, few of these have been set up with the definite purpose of providing management education, for example, the Indian Institutes of Management (IIMs) in India.
3. The elementary purpose of management is to help the organization to achieve its stated goal. This may be profit-making for a business enterprise and service for a hospital. But, profit maximization as the only objective of management will not help the company. Having a good management team that works effectively and efficiently will serve society by offering a better quality of products at reasonable prices. Alike other professional managers are also anticipated to serve society rather than simply earning profit for the owner.
4. A legally recognized body regulates all professions. Managers also have their associations (e.g., All India Management Association). There is no compulsion for managers to be members of such an association. However, management associations are not statutory bodies. 

30. State any five benefits of training to the organisation.

OR

State any five duties that are performed by the human resource personnel.

Answer: Training is a process by which the skills, talents, and capabilities of the employees of an organization are increased. It helps employees to grasp new skills and utilize the knowledge provided. It is not only required by the new employees, but it is also necessary for the current staff. It is not a one-time job. It is a continuous process that helps increase the performance of the employees and prepares them for their new job or keeps them updated on their present job.
The benefits of training and development to the organisation are as follows:

1. Reduces cost of production: Training is always better than hit and trial methods, which are mostly a waste of time and effort. On the other hand, training is a systematic approach for the employees to learn and gain knowledge. The employees work economically, using the resources efficiently, which prevents wastage of materials and reduces the cost of production.
2. Higher productivity: Training strengthens the productivity of the employees both in qualitative and quantitative terms, which further leads to higher profits.
3. Prepares future managers: Training benefits all employees whether they are new or old. It also trains the future manager who can take charge of the organization in the absence of the present manager due to any kind of emergency.
4. Better response to fast-changing environment: Training keeps the employees of the organization updated on the changes in the organization as well as increases their response to the rapid changes in the business environment, be it technical or economical.
5. Increases morale of employees: Training helps increase the morale of the employee and also decreases absenteeism and employee turnover.
6. Reduces accidents: Training helps to reduce accidents in the workplace as employees are given proper training on how to operate machinery or the system on which they are working.

OR

Human resource management can be defined as the art of procuring, developing, and maintaining a competent workforce to achieve the goal of an organization effectively and efficiently. In the present business environment, no business can exist without appropriate human resources. So, human resources management has become the main focus of every organization.

The five duties which are performed by Human Resource Personnel are:

1. Manpower planning refers to the process of analyzing all kinds of activities in the organization regarding the selection and hiring of workers for jobs to fill in the vacancy of an organization.
2. Employment of people involved the following steps: Recruitment, i.e., searching for potential people for the required job, selection, i.e., shortlisting the suitable candidates, placement, i.e., assigning the right people for the right job, and orientation, i.e., introducing the employees to the organization.
3. Training and development of the employees are necessary, as they need to stay updated on the organization’s work and technology for efficient working and growth.
4. Compensation and remuneration, which involves developing a system of adequate and equitable remuneration. It is an important and necessary step required for getting as well as holding qualified employees.
5. Performance appraisal is concerned with the evaluation of the employee’s performance.
6. Maintaining relationships with the labor as well as union management, and taking care of complaints and grievances.
7. Giving social security and welfare to the employees and taking care of legal procedures and policies.

31. Sun Industries Ltd. is a leading company in India which manufactures steel. Its plants are located in Jamshedpur and Bokaro. Currently, it produces about three million tonnes of saleable steel. As the demand for steel is growing, it is planning to expand the capacity of the existing steel plants. It is estimated that it will require < 1,800 crore of
fixed capital and < 200 crore of working capital. To raise the funds, the company is considering whether it should issue
equity shares or 7% debentures of < 2,000 crore. Presently the capital structure is comprising of equity only. The Finance Manager of the company suggested that since the stock markets are undergoing a bearish phase, it should issue debentures.
(a) Is it justified to raise funds by issuing debentures? Give reason in support of your answer.
(b) Explain the impact of issue of debentures on the risk faced by the company.
(c) Explain the impact of ‘cost of debt’ and ‘cost of equity’ on the capital structure of the company.

OR

From last many years, in the month of November, due to sudden rise in the pollution levels in Delhi and other parts of northern India, there has been an increase in the demand for air purifiers.
Inderprastha Technologies Ltd., a manufacturer of air purifiers wants to encash this opportunity and wants to raise its investment in stock. It is expected that this decision would increase the rate of profitability of the business. Due to this many competitors have recently entered in this industry. In order to increase the sales, the company has started selling air purifiers on liberal credit terms. It is not affecting the profits of the company since the production cycle of the product is short.
Identify and state any two factors that ‘Inderprastha Technologies Ltd.’ will keep in mind before deciding its working capital requirements. Also, state three other factors which should be kept in mind while deciding the working capital requirements of a company.

Answer: (a) Yes, it is justified to raise funds by issuing debentures because Capital Structure should be a mix of borrowed funds(debt) and owner’s funds(equity). The ideal ratio of Equity to Debt should be 2:1. Secondly, the market is bearish, so the value of the issued shares would be undervalued, so raising funds through debentures would be better. 

(b) The impact of issue of debentures on the risk faced by the company are:

• Debenture issued will be a liability on which interest has to be paid irrespective of the company’s profit.
• Issuing debenture would be cheaper as compared to equity because interest paid on the debt (debenture) is a deductible expense for computation of tax.
• Raising funds from debentures would be more risky as compared to equity because interest payment and return of principal amount is obligatory.

(c) Cost of debt:  Cost of debt directly influence the extent of debt to be used in the capital structure. If the interest rate on debt is less, then more debt is preferred as compared to equity. However, in case of higher cost of debt, company prefers more of equity.   

Cost of equity: Shareholders expect a rate of return from equity, which is affected by use of debt capital. Use of more debt in capital structure raises the financial risk faced by shareholders. Increase in risk also increases the desired rate of return. So, debt should be used only to a limited level. Any use beyond that level also raises the cost of equity and share price may decrease in spite of increased EPS.   

OR

Answer: The two factors that ‘Inderprastha Technologies Ltd.’ will keep in mind before deciding its working capital requirements are: 

1. Technology and Production Cycle: A company using labour-intensive techniques requires more working capital because it has to maintain enough cash flow for making payments to labour. However, a company using capital-intensive techniques requires less working capital because the investment made by the company in machinery is a fixed capital requirement, and also there will be less operating expenses. 
2. Level of Competition: If there is competition in the market, then the company will have to follow a liberal credit policy for supplying goods on time. For this, it will have to maintain higher inventories, resulting in more working capital requirements. However, if there is less competition in the market or a company is in a monopoly position, then it will require less working capital, as it can dictate its own terms according to its requirements.
3. Business Cycle Fluctuation: A market flourishes during the boom period which results in more demand, more stock, more debtors, more production, etc., ultimately leading to the requirement for more working capital. However, the depression period results in less demand, less stock, fewer debtors, less production, etc., which means that less working capital is required. 
4. Operating Efficiency: If a company has a high degree of operating efficiency then it will require less working capital; however, if a company has a low degree of operating efficiency then it will require more working capital. (Operating cycle of a firm is the time period from the purchase of raw material to the realisation from debtors). Hence, it can be said that the length of the operating cycle directly affects the requirements of the working capital of an organisation.
5. Growth Prospects: If a firm is planning on expanding its activities then it will require more working capital, as it needs to increase the scale of production for expansion, resulting in the requirement of more inputs, raw materials, etc., ultimately increasing the need for more working capital. 

Section E

32. InfoMed Ltd. is a growing IT firm with rapidly increasing market share. It has recently been awarded ‘The Best Organisation to Work in India – 2019’ and is the most sought after by job-seekers. In this company, rules and procedures to be followed by employees have been clearly laid down by the top management. There is no ambiguity in the role that each member has to play, as the duties are specified.
During lunch time, all employees of the organisation get together in the canteen. This time is much awaited by every employee as it allows them to share their feelings with others. This leads to the success of the organisation.
(a) Identify and explain the types of organisation being discussed in the above case.
(b) State two advantages of each type of the organisation identified above which have not been discussed in the above para.

OR

‘Good Looks Ltd.’ are the manufacturers of cosmetics. The company enjoyed a pre-eminent position in the business and has grown in size. Till recently the company had been doing good business; but after the entry of competitors the market share of ‘Good Looks Ltd.’ has declined. One of the reasons for this was that all decisions were taken by the higher management.
This has resulted in the concentration of all decision-making process at the apex of the management hierarchy.
Worried about the decline in market share and profit, the company appointed ‘Structures Consultants India Ltd.’ as a consultant to suggest improvements in the organisation’s decision-making process. The consultant suggested that the decision-making responsibilities may be divided among hierarchical levels. They said that if decision-making authority will be shared with the lowest levels and is consequently placed near the point of action, it will help in quick decision-making and this will help the company in adapting itself to the dynamic operating conditions. They stated that the philosophy of dispersal of authority propagates the belief that people are competent, capable and resourceful and can assume the responsibility of effective implementation of their decisions.

(a) Identify and give the meaning of the concept based on which ‘Structures Consultants India Ltd.’ gave their recommendations to ‘Good Looks Ltd.’. 
(b) Explain any four points of importance of the concept identified in (a) above.

Answer: (a) Formal Organisation is discussed here. 
Formal organisation refers to the official structure of well-defined jobs, each being a measure of authority and responsibility. This organisational structure is designed by the management to accomplish a particular task. In formal organisation positions and authority of each level are clearly defined. It is deliberately designed to enable people to work together for achieving common objectives. It is a deliberate determination by which people accomplish goals by adhering to the norms laid by the structure. In this kind of organisation, each person is responsible for their performance.

(b) Informal Organisation: Informal organisation refers to a network of social relations, which emerges on its own due to formal roles and relationships amongst people. Informal organisations emerge from within the formal organisation when people interact beyond their official defined roles. When people have frequent contact, they cannot be forced into a rigid formal structure. It means the informal organisation is not pre-planned.

The following are the advantages of informal organisation:

• Faster Communication: Informal organisation follows the independent channel of communication because there is no prescribed official channel. It leads to a faster spread of information as well as quick feedback. Sometimes, management also uses such communication to transmit certain information, which the formal system fails to convey.
• Fulfill social needs: Informal organisation satisfies the social needs of the members, which are not satisfied in formal organisation. This enhances their job satisfaction, as it gives them a sense of belongingness.
• Help in achieving organisational objectives: It contributes towards the fulfillment of organisational objectives by compensating for inadequacies in the formal organisation. Informal organisation provides feedback about the work experience as they discuss their views and ideas with superiors.

OR

(a) The concept based on which ‘Structures Consultants India Ltd.’ gave their recommendations to ‘Good Looks Ltd.’ is Decentralisation. Decentralisationimplies assigning all the decision-making functions to the lower level of the hierarchy, and that would remove the need for higher management, i.e., the decision-making authority is divided between all the levels of the hierarchy. Both of these situations are unrealistic, and therefore both centralization and decentralization are needed in the working of an organization.

Importance of Decentralisation:

• Develops initiative among subordinates: Since the lower levels of management have to make decisions on their own and perform the tasks with the help of their capabilities, they become more confident and self-reliant. It also enables them to stay focused and find the answers to solve all the different kinds of problems they might have to face. Decentralization is helpful for the subordinates to develop and identify themselves, and also to find their potential to become strong leaders.
• Develops managerial talent for the future: The experience that a subordinate gain from handling different kinds of tasks and situations is equally important that one receives from the training based on skills and talent. Decentralization gives the subordinates a purpose to prove themselves and helps them build their potential to qualify for a more ambitious position through promotion. It is also a means to identify those persons who are not ready and need more training and development. Thus, it is an opportunity for the subordinates to implement their training in real-life situations.
• Quick decision-making: In centralization, the decisions are taken by the top level of management, which has to be transferred down to the lower levels. This transfer of information has to go through several levels, which could slow down the response and hence the decision-making. However, in decentralization, the decisions are taken even at the lower levels, so they are already updated, and therefore, there is no need for the information to travel through long channels for their approval. This makes communication quick and easy and also saves up a lot of time for the organization. Besides this, the information is more accurate, as there is no need for it to pass through all the levels of management. 
• Relief to the Top management: Decentralization reduces direct management of the subordinates at the hands of the superiors, as the subordinates are free to act and manage the given activities by the restriction set by the top management. The top management can focus better on the policy decisions, i.e., future decisions, rather than being concerned with both policy and operational decisions. They can invest their time in thinking and planning for the future of the organization without being worried about daily activities. Thus, decentralization is helpful as the superiors do not have to check up on all the decisions made by the lower levels every single time.

33. Give the meaning of ‘Controlling’. Explain the steps in the process of controlling.

OR

Give the meaning of ‘Directing’. Explain the points that highlight the importance of directing.

Answer: Controlling means comparing the actual performance of an organisation with the planned performance and taking corrective actions if the actual performance does not match the planned performance. Controlling cannot prevent the deviation in actual and planned performance; however, it can minimise the deviations by taking corrective actions and decisions that can reduce their recurrence. 

“Control is the process of bringing about conformity of performance with planned action. “-Dale Henning

Different steps involved in the process of controlling areas follows:

1. Setting Performance Standards:The first step of the process of controlling is to establish standards of performance against which the actual performance of the organisation is measured. An organisation should clearly define its standards to the employees and must establish attainable, understandable, and realistic standards to be achieved. Standards can be set in quantitative terms as well as qualitative terms. Under quantitative terms, the standards of an organisation are expressed in quantitative terms like units of the product to be produced and sold, revenue to be earned, the cost to be incurred, etc. While setting the quantitative standards an organisation should keep them precise so as to easily compare the actual performance with the standards. However, under qualitative terms, the standards of an organisation are expressed in qualitative terms like time taken to serve a customer, motivation level of employees, etc.

2. Measurement of Actual Performance: Once the organisation has established the standards, the second step of the process of controlling is to measure the actual performance in a reliable and objective manner. The actual performance of an organisation can be measured through different techniques such as sample checking, personal observation, etc., and should be measured in the same units in which the standards are fixed to make the comparison easy. Usually, the actual performance is measured at the end of the performance. However, in some cases, organisations measure performance throughout the performance.

3. Comparison of Actual Performance with Standards: The third step of the process of controlling is to compare the actual performance of the organisation with the established standards (in the first step). By comparing the actual performance with the standards, an organisation can determine the deviation between them. When the standards are expressed in quantitative terms, it becomes easy for the organisation to make comparisons as there is no subjective evaluation required. If the actual performance of the organisation matches with the set standards, then the controlling process ends after the third step, which means that everything is in control of the firm. However, if the actual performance of the organisation does not matches with the set standards, then there are two more steps in the process. 

4. Analysing Deviations: The actual performance and set standards of an organisation rarely match with each other. Usually, there is always some variation between the expected and actual performance. Therefore, the fourth step of the process of controlling is to analyse the deviations. To do so, an organisation must fix an acceptable range of deviation in performance. Besides, an organisation should focus more on the significant deviation and less on the minor deviations. For this, managers of an organisation usually take the help of Critical Point Control and Management by Exception. 

5. Taking Corrective Action: The last and final step of the process of controlling is to take corrective action. If the deviations are within the acceptable limits set by the managers, then there is no need to take corrective action. However, if the deviations go beyond the set acceptable limit in the key areas, then proper and immediate managerial actions are required. An organisation can easily rectify the defects in the actual performance through the corrective steps. 

OR

The process of instructing, guiding, counselling, motivating, and leading people in an organisation to achieve the organisational goals is known as Directing. Directing not only includes order and instructions by a superior to the subordinates but also includes guiding and inspiring them. It encompassed many elements like motivation, leadership, supervision, besides communication. It is a managerial function which is performed throughout the life of an organisation.

Importance of Directing

The importance of directing are as follows:

• Directing Initiates action: Directing sets an organisation into motion, and helps other managerial functions to initiate and activate. It helps the managers to supervise, communicate, lead, guide and motivate the subordinates to achieve the organisational goals. For example, a superior guides his subordinates and explains the task, which will help the subordinates to start the work and achieve the goal.
• Directing leads to integrated group activity: The organisational objectives can be achieved only when individual efforts are integrated. Directing integrates employees’ efforts in such a way that every individual effort contributes to organisational performance. For example, a leader can convince his subordinates that group efforts will help to achieve organisational goals.
• Directing attempts to get maximum out of individuals: Directing helps superiors to realise the potential and identify the capabilities of individuals by motivating and guiding them. By using the elements of directing, i.e., supervision, motivation, leadership, and communication, the efficiency of employees can be raised.
• Directing helps to implement changes: Directing helps to introduce changes in an organisation. Generally, people in an organisation resist changes. Effective communication, supervision, motivation and guidance help to overcome such resistance at the workplace. For example, the introduction of a new method of doing a particular task in a factory is resisted by workers, but when managers explain the purpose, guide and provide them training and rewards, it can be easily accepted by the workers.
• Directing provides stability and balance in the organisation: Stability and balance are maintained in an organisation with the help of directing because it fosters cooperation and commitment amongst employees, and helps to achieve balance amongst various groups, departments, units, etc. For example, every individual has personal goals, but the managers integrate the efforts of all the individuals towards the achievement of organisational goals through guidance, motivation, supervision and communication.

34. After completing his studies, Mahesh started working in a Non-Governmental Organisation (NGO) as an Administrative Officer. The organisation is engaged in activities related to consumer welfare.
One day when his mother returned home after shopping, she gave him the mixed fruit juice which she had bought. After consuming the juice, Mahesh started feeling uneasy. On checking, he found that the juice packet purchased was without FPO mark. He realised that there is a strong need to educate consumers about the role of NGOs before buying any good or service.
State any six functions which the NGOs can perform to impart knowledge and educate consumers.

Answer: In India, the task of Consumer Protection is being handled by about 500 consumer organisations. Some of the most popular organisations include Common Cause (New Delhi), Citizen Action Group (Mumbai), Consumer Guidance Society of India (Mumbai), Consumer Education and Research Centre (CREC) Ahmedabad, etc. The functions performed by NGOs or consumer organisations are as follows:

1. These organisations motivate people to ask for the quality of products, such as Agmark, Hallmark, etc. while making a purchase. 

2. They take initiative by filing cases in the consumer court in the interest of the general public and villagers, instead of any individual. 

3. To provide information to the consumers and to benefit them, the consumer organisations carry out comparative testing of the consumer products in accredited laboratories, so they can check and confirm the relative qualities of the competing brands, and publish them for the consumers. 

4. These organisations help out government agencies in resolving consumer exploitation cases and carrying on the consumer awareness program. 

5. They also file complaints in the consumer court on behalf of consumers. 

6. The consumer organisations provide the consumers with legal assistance through legal advice, aid, etc., for seeking legal remedy. 

7. These organisations encourage consumers to protest and take action against any unfair trade practices and exploitative activities of the sellers and manufacturers. 

8. It is essential for the consumers to attain full knowledge of consumer problems, reliefs available, consumer rights, responsibilities, etc. It is the duty of consumer organisations to impart such knowledge to consumers through the publishing of periodicals and other publications.