[Class 12 Business Studies Solved question Paper, AHSEC, 2019, Assam Board]
BUSINESS STUDIES SOLVED QUESTION PAPERS
AHSEC CLASS 12 BUSINESS STUDIES' 2019
BUSINESS STUDIES
Full Marks: 100
Time: 3 hours
The figures in the margin indicate full marks for the questions.
1. Answer the following questions: 1*10=10
(a) Who is known as the father of scientific management? 1
Ans: F. W .Taylor
(b) In which year Indian economy was opened up? 1
Ans: Industrial Policy 1991. This policy opened up the Indian economy.
(c) Budget is a quantitative expression. (Write True or False) 1
Ans: True
(d) Name the organisation which regulates the working of banks in India. 1
Ans: RBI
(e) Name one method of on the job training. 1
Ans: Job Rotation
(f) Give the full form of SEBI. 1
Ans: Securities and Exchange Board of India
(g) Name one feature of a good control system. 1
Ans: Suitability
(h) Name one external source of recruitment. 1
Ans: Direct recruitment
2. What is ratio analysis? 2
Ans: It refers to analysis of financial statements by calculating various types of ratios. Some of the important ratios are current ratio, liquid ratio, debt-equity ratio, proprietary ratio, profitability ratios. These ratios help in knowing the operating efficiency and financial position of the company.
3. State two objectives of NSE. 2
Ans: National Stock Exchange of India was established in 1992 and started working in 1994. The main objectives of NSE was stated below:
a) To ensure equal access to investors all over the world.
b) To provide fair, efficient and transparent trading of the securities electronically.
c) To provide facilities of international standards.
4. Write two differences between advertising and personal selling. 2
Basis | Advertising | Personal Selling |
Form | These are Personal. | These are impersonal. |
Message | These are uniformity of message which means that the message is the same for the entire customer. | This message has no uniformity which means it can be changed keeping in view the behavior of the customer. |
Flexibility | It lacks flexibility. | It is completely flexible. |
Cost | It is relatively less costly method. | These are a most costly method. |
5. Give two differences between capital market and money market. 2
Ans: Difference between capital market and money market
Basis of Distinction | Capital Market | Money Market |
1) Period | Capital market is a market for medium and long term funds. | Money market is a market for short term funds. |
2) Constituents | These include new issue market, stock market, stock brokers and intermediaries. | These include call money market, bill market and discounting market. |
6. Explain two rights given to consumers under the Consumer Protection Act, 1986. 2
Ans: Rights of Consumers:
a) The right to safety: It refers to the right to be protected against products which are hazardous to health or life.
b) The right to be informed: Consumers have a right to be informed about the quality, quantity and price of goods or services so that they can make the right decision.
c) The right of choice: The consumer has the right to be assured of a choice of various goods and services of satisfactory quality and competitive price.
7. Explain the concept of Taylor’s Differential Piece Rate system. 3
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Ans: This scientific technique of differential wage rate system emphasises on paying different rate of wage for efficient and inefficient employees. To conduct differential wage rate system Taylor suggested that the company must fix a standard rate of wage for workers producing standard output. The workers who produce more than the standard target must be paid with a higher rate of wages as compared to those who are producing less than standard.
8. (a) Define Organisation as a group activity. 3
Ans: Every enterprise is created with a specific purpose. Based on this, the activities involved can be identified. Once activities are identified, then they need to be grouped. They are grouped in different ways. The activities which are similar in nature can be grouped as one and a separate department can be created. For example – activities undertaken before sale of a product, during the sale of the product and after the sale of the product can be grouped under the functions of a marketing department. Normally, all activities of a manufacturing unit can be grouped into major functions like purchasing, production, marketing, accounting and finance, etc. and each function can be subdivided into various specific jobs.
Or
(b) Discuss the types of Organisation structure. 3
Ans: There are Types of Organisational Structure
a) Functional Structure: Functional organisation is a type of organisation in which the work of the whole enterprise is divided into a number of specialized functions like production, purchasing, marketing, office management, personnel relations, etc. and each of these specialised functions is entrusted to a functional expert or specialist.
b) Divisional Structure: When the organisation is large in size and is producing more than one type of product then activities related to one product are grouped under one department. This type of organisation is called divisional structure organisation. In divisional structure all activities associated with a product or line can be easily co-ordinated.
9. (a) Discuss the objectives of financial planning. 3
Ans: Objectives of Financial Planning: Financial planning is done to achieve the following two objectives:
1. To ensure availability of funds whenever these are required: The main objective of financial planning is that sufficient fund should be available in the company for different purposes. It ensures timely availability of finance.
2. To see that firm does not raise resources unnecessarily: Excess funding is as bad as inadequate or shortage of funds. If there is surplus money, financial planning must invest it in the best possible manner.
3. To help in fixing most appropriate capital structure: If appropriate capital structure is not designed then it will create a problem of liquidity for the company. one of the aims of financial planning is to assist the management in designing appropriate capital structure.
Or
(b) Define current assets. Give two examples of current assets. 2+½+½=3
Ans: Current Assets are assets held on a short-term basis normally for one year. These assets are used in day to day business activities. Examples: Debtors (accounts receivable), bills receivable (notes receivable), stock (inventory), temporary marketable securities, cash and bank balances.
10. (a) Who can file a complaint before a consumer court? 3
Ans: A complaint before an appropriate consumer forum can be made by complainant who can be:
a) Any consumer,
b) Any registered consumer association,
c) Central/state govt.,
d) One or more consumer on behalf of many consumer having same interest,
e) Legal representative of deceased consumer within two years.
Or
(b) Briefly discuss three important features of entrepreneurship. 3
Ans: Features of Entrepreneurship:
a) Entrepreneurship is the practice of starting new organizations, particularly new businesses generally in responses to identified opportunities.
b) Entrepreneurship ranges in scale from solo projects to major undertakings creating many job opportunities.
c) It is a risk bearing practice.
11. (a) Explain any three factors affecting pricing of a product. 3
Ans: Factors determining Fixation of price:
i) Cost of the product: Cost of the product is the main component of the price. No company can sell its product or service at less than the cost of the product. A Fixed and variable cost are to be considered for determining the price.
ii) The utility and demand for the product: Intensive study for the demand for product and service in the market is to be undertaken before the fixation of the price of the product. If demand is relatively more than supply, higher price can be fixed.
iii) Extent of competition in the market: It is necessary to take into consideration prices of the product of the competing firms prior to fixing the price. In case of cut throat competition it is desirable to keep price low.
Or
(b) Write any three merits of Internal recruitment. 3
Ans: Advantages of Internal Source of Recruitment:
a) Job Security: It creates a sense of security among employees when they are assured that they would be preferred in filling up vacancies.
b) Motivation: It motivates the existing employees, for they are assured of the fact that they would be preferred over outsiders when vacancies occur. It gives the scope of development for existing employees of the organisation.
c) Improved Commitment: It promotes loyalty and commitment among employees due to sense of job security and opportunities for advancement.
12. Define management and discuss its objectives. 2+3=5
Ans: Ans: Management is the coordination of all resources through the process of planning, organizing, directing, staffing and controlling in order to attain stated objectives effectively and efficiently. Effectively means doing the right task, completing activities and achieving goals and efficiently means to attain objectives with least amount of resources at a minimum cost.
According to Modern concept “Management is a process of getting things done with the aim of achieving goals effectively and efficiently.”
According to Marry Parker Follett, “Management is an art of getting things done through others and with formally organised groups."
Objectives of management are divided into four main categories which are stated below:
1) Organisational Objectives: Organisational objectives refer to high priority or core objectives which are essential for the existence of an organisation. These objectives aim at the prosperity and growth of the organisation.
2) Social Objectives: Management is not only a representative of the owners and employees but is also responsible towards various groups outside the organisation such as consumer, government, creditors etc.
3) Personal or individual objectives: These objectives are related to the employees of the organisation. Employees are the most important resources of every company and satisfied and motivated employees contribute maximum for the organisations.
4) General objectives: Besides the above mentioned main objectives, management tries to achieve the following several objectives:
a) Maximum prosperity for employer and employees.
b) Human betterment and social justice.
c) Economic development and growth.
13. Explain the impact of Economic Reforms on Business and Industry. 5
Ans: Liberalisation and Globalisation of Indian economy through industrial policy change in 1991 have created both challenges and opportunities for the Indian business. Impact of Government Policy Changes on Business and Industry (Significance of liberalisation and globalisation) can be studied under the following heads:
a) Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines.
b) More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
c) Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.
d) Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
e) Threat from MNC: Massive entry of multi-nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners
14. (a) Discuss the Elements of Delegation. 5
Ans: Elements of Delegation of Authority:
a) Responsibility: Responsibility means assigning the work amongst subordinates. The process of delegation begins when manager divides his work among different individuals. This is also known as entrustment of duties. Duties can be divided into two parts: one part, that the individual can perform himself and the other part, that he can assign to his subordinates to perform.
b) Authority: Authority means power to take decision. To carry on the responsibilities every employee needs to have some authority, so, when managers are passing their responsibilities to the subordinates, they also pass some of the authority to the subordinates.
c) Accountability: To make sure that his subordinates perform all works effectively and efficiently the manager creates accountability. Accountability means subordinates will be answerable for the non-completion of the task. It is the third and final step of delegation process.
Or
(b) Distinguish between delegation and decentralisation of authority. 5
Ans: Difference between Delegation of Authority and Decentralisation .
Basis | Delegation of Authority | Decentralisation |
Meaning/Name | Sharing of the task with the subordinate and granting authority in a prescribed limit by the superior is Delegation. | The systematic delegation to the lowest level of management is called decentralization. |
Nature | It becomes compulsory in all the organizations as the complete task cannot be performed by the superior. | It becomes compulsory in the large organisations. |
Freedom in action | Less freedom to the subordinate Final authority lies with the delegator. | More freedom given to the subordinate. |
Status | This is a process done as a result of Division of work. | This is the result of the policies framed by higher officials. |
Scope/Authority | It depicts limited distribution of work, so has a limited scope. | It depicts broader distribution of authority so has a wider scope. |
Purpose | Its purpose is reduction of workload of the officer. | The purpose is expansion of the authority in the organization. |
15. Discuss the features of liberalisation. 5
Ans: Features of Liberalisation:
a) The industry is given freedom of producing and distributing the goods and services.
b) Freedom in deciding the scale of business activities.
c) No restriction on fixation of the prices of goods services.
d) Removing unnecessary controls over the economy.
e) Removing unnecessary control over the economy through delicensing.
16. Analyse the steps involved in the staffing process of an organisation. 5
Ans: Steps involved in Staffing Process:
1) Enumerating man power requirement: Staffing process begins with the estimation of man power requirement which means finding out number and type of employees need by the org. in future.
2) Recruitment: After man power planning, the manager tries that more and more people should apply for the job so that the org. can get more choice and select better candidates.
3) Placement and Orientation: Placement refers to placing the right person on the right job for which he is selected. Orientation refers to introducing the new employees with the existing employees.
4) Selection refers to choosing the most suitable candidate to fill the vacant job position. It is a negative process because a number of candidates are rejected under it.
5) Training and Development: The process of training helps to improve the job knowledge and skill of the employees. Training and Development not only motivate the employees but these improve efficiency of work also.
6) Performance Appraisal: At this step the capability of the employees is judged and for that his actual work performance is compared with the work assigned to him. Performance and career planning: It is a process through which employees get better salary, status, position and also get promotion to higher post.
7) Compensation: For deciding the compensation the works are evaluated. Compensation must be reasonable and related with the work.
17. (a) What do you mean by responsibility centres? Discuss any three types of responsibility centres. 2+3
Ans: Responsibility Centre: A responsibility centre is a unit of an organisation which has its own its own goals and objectives, working staff, policies and procedures in addition to the organisation goal. It is headed by a manager who is responsible for revenue generated, expenses incurred and funds invested.
Responsibility centre is of various types which are stated below:
Cost Centre: A large business is divided into a number of functional departments (such as production, marketing and finance) for administrative convenience. These departments are further divided into smaller divisions for cost ascertainment and control. These smaller divisions are called cost centers. A cost centre is a location, person or item of equipment (or group of these) in relation to which cost can be ascertained and controlled. In simple words, it is a subdivision of the organization to which cost can be charged.
Revenue Centre: A revenue centre is a unit of the organisation which is mainly responsible for generating sales revenue. Manager of revenue centre do have control over cost, investment of funds but usually has control marketing expenses. Actual revenue is compared with budgeted revenue and actual marketing expenses with budgeted marketing expenses to evaluate the performance of revenue centre.
Profit Centre: A profit centre is a unit of the organisation whose manager is responsible for both generating revenues and costs. The primary responsibility of manager of a profit centre is to make decisions that affect both costs and revenues (and thus profits) for the department or division. Maximisation of profit is the primary aim of a profit centre.
Or
(b) Discuss the traditional techniques of management control. 5
Ans: Techniques of Control or Methods of Establishing Control
A number of techniques or tools are used for the purpose of managerial control. Some of the techniques are used for the control of the overall performance of the organisation, and some are used for controlling specific areas or aspects like costs, sales, etc. The various techniques of control can be classified into categories, viz.
The important Traditional or Conventional techniques are: Direct supervision and observation, Budgetary Control, Standard Costing, Break-even Analysis, Inventory Control, Internal Audit, Statistical Data Analysis, Production Planning and Control.
Some of the techniques are discussed below
1. Direct Supervision and Observation: 'Direct Supervision and Observation' is the oldest technique of controlling. The supervisor himself observes the employees and their work. This brings him in direct contact with the workers. So, many problems are solved during supervision. The supervisor gets first hand information, and he has better understanding with the workers.
2. Budgetary Control: A budget is a planning and controlling device. Budgetary control is a technique of managerial control through budgets. It is the essence of financial control. Budgetary control is done for all aspects of a business such as income, expenditure, production, capital and revenue. Budgetary control is done by the budget committee.
3. Break Even Analysis: Break-even analysis is a simple control tool. Break Even Analysis or Break Even Point is the point of no profit, no loss. The Break-even analysis acts as a control device. It helps to find out the company's performance. So the company can take collective action to improve its performance in the future.
18. (a) Explain the main elements of marketing mix. 5
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Ans: 4 P’s of Marketing Mix:
1. Product: Product is one of important part of marketing mix because it reflects the good or bad reputation of any organization. The products represent any business efficiently. Successful organizations always search out the buying habits of their customers and designed their products based on those buying habits in order to meet the customer’s requirements. They also design their products based on important factors such as purchasing power and geographical locations etc.
2. Price: It is the worth of product on which customers are agreed to buy the products. Price of the product should be according to the range of regular customers. Prices are fluctuating according to seasonal requirements. Marketers always try to satisfy their clients at any cost.
3. Place: Products always design based on geographical place because customers buy products according to their traditions and seasons. Companies which are going to spread their business networks throughout the world must visit the place where they want to open their branches. They need to study the traditions and seasonal changes of the country where they want to initialize their products.
4. Promotion: Promotion activities involve marketing and advertising. Promotional activities are used to create awareness about the products. Customers know about products and their specification through social marketing media. Companies adopt social marketing media in order to create awareness about their products and services. Promotional activities and techniques are important if companies initialize new products or make some changes in product’s specifications. Promotional activities include advertising, selling, public relations and sales promotions.
Or
(b) Discuss the factors influencing pricing. 5
Ans: Price is defined as the amount we pay for goods or a service or an idea. Price is the only element in the marketing mix of a firm that generates revenue. The term ― Price need not be confused with the term ― Pricing. Price is the value that is put to a product or service. But pricing is different from price. It refers to decisions related to fixing of price of a commodity. A pricing strategy takes into account segments, ability to pay, market conditions, competitors price etc while fixing price. It is targeted at the defined customers and against competitors.
Factors determining Fixation of price:
i) Cost of the product: Cost of the product is the main component of the price. No company can sell its product or service at less than the cost of the product. A Fixed and variable cost are to be considered for determining the price.
ii) The utility and demand for the product: Intensive study for the demand for product and service in the market is to be undertaken before the fixation of the price of the product. If demand is relatively more than supply, higher price can be fixed.
iii) Extent of competition in the market: It is necessary to take into consideration prices of the product of the competing firms prior to fixing the price. In case of cut throat competition it is desirable to keep price low.
iv) Government and Legal Regulation: If the price of the commodity and service is to be fixed as per the regulation of the govt., it should also be borne in mind.
v) Pricing objective: Usually at the time of price fixation a certain amount of profit is added to the cost of the product. Objective is to earn higher profit, it may it may add amount of it.
vi) Marketing method used: - Price also influenced by the marketing method used by the company. Example – Commission which is to be paid to the middlemen for the sale of the goods is also added to the price.
19. (a) Discuss the contributions of Taylor and Fayol in the context of management. 8
Ans: CONTRIBUTION OF F.W. TAYLOR
F.W. Taylor is one of the founders (the other two are Max Weber and Henry Fayol) of classical thought/classical theory of management. He suggested scientific approach to management also called scientific management theory. Frederick Winslow Taylor well-known as the founder of scientific management was the first to recognize and emphasis the need for adopting a scientific approach to the task of managing an enterprise. He tried to diagnose the causes of low efficiency in industry and came to the conclusion that much of waste and inefficiency is due to the lack of order and system in the methods of management. He found that the management was usually ignorant of the amount of work that could be done by a worker in a day as also the best method of doing the job. As a result, it remained largely at the mercy of the workers who deliberately shirked work. He therefore, suggested that those responsible for management should adopt a scientific approach in their work, and make use of "scientific method" for achieving higher efficiency. The scientific method consists essentially of:
a) Observation
b) Measurement
c) Experimentation and
d) Inference.
He advocated a thorough planning of the job by the management and emphasized the necessity of perfect understanding and co-operation between the management and the workers both for the enlargement of profits and the use of scientific investigation and knowledge in industrial work. He summed up his approach in these words:
a) Science, not rule of thumb
b) Harmony, not discord
c) Co-operation, not individualism
d) Maximum output, in place of restricted output
e) The development of each man to his greatest efficiency and prosperity.
Contribution of Henry Fayol
Henry Fayol (1841-1925): was a Frenchman with considerable executive experience who focused his research on the things that managers do. He wrote during the same period Taylor did. Taylor was a scientist and he was managing director of a large French coal-mining firm. He was the first to envisage a functional process approach to the practice of management. His was a functional approach because it defined the functions that must be performed by managers. It was also a process approach because he conceptualized the managerial job in a series of stages such as planning, organizing and controlling. According to Fayol, all managerial tasks could be classified into one of the following six groups:
• Technical (related to production);
• Commercial (buying, selling and exchange);
• Financial (search for capital and its optimum use);
• Security (protection for property and person);
• Accounting (recording and taking stock of costs, profits, and liabilities, keeping balance sheets, and compiling statistics);
• Managerial (planning, organizing, commanding, coordinating and control);
He pointed out that these activities exist in every organization. He focused his work on the administrative or managerial activities and developed the following definition:
• Planning meant developing a course of action that would help the organization achieve its objectives.
• Organizing meant mobilizing the employees and other resources of the organization in accordance with the plan.
• Commanding meant directing the employees and getting the job done.
• Coordinating meant achieving harmony among the various activities.
• Controlling meant monitoring performance to ensure that the plan is properly followed.
Or
(b) Discuss the significance of the principles of management. 8
Ans: Management principles are needed for the following reasons:
a) Optimum use of resources: The management principle of “science, not rule of the thumb” suggests that every task should be done with minimum effort and energy and additional work can be done with the saved energy. By saving time, efforts and energy activities can be made economical and enhance the productivity of the resources.
b) Change in technology: The management principle of “division of labour” helps management in identifying in which activity technology has changed. If there is no division of labour then confusion may prevail about what and how much to change.
c) Effective Administration: The principle of ‘scalar chain’ helps the enterprise to communicate with people at different levels. ‘Unity of direction’ removes confusion in minds of employees; and ‘Unity of command’ avoids dual subordination. The knowledge of principles improves the understanding of managers about the ways and means of managing an organization. Management principles are helpful in taking decisions and handling situations arising in course of management.
d) Helps in thoughtful decisions making. Management principles help in thoughtful decision-making. They emphasize logic rather than blind faith. Management decisions taken on the basis of principles are free from bias and prejudice.
e) Fulfilling social responsibilities: A business is a creation of society and makes use of resources of society so it must do something for society. Management principles guide the managers to perform their social responsibilities.
f) Direction for training of managers. The principles are helpful in identifying the areas of management in which existing and future managers should be trained. The principles of management help the universities and professional institutes to impart teaching and training in the theory and practice of management.
g) Role of management. The principles focus on matters on which greater managerial attention is required. Principles act as ready reference for the managers to check whether their decisions are appropriate or not.
20. (a) Define co-ordination. Discuss the importance of co-ordination. 2+6=8
Ans: Coordination is defined as the process of bringing about unity and harmony of functioning amongst the various elements of an organisation. In the words of Henry Fayol, ”To co-ordinate is to harmonise all the activities of a person in order to facilitate its working and its success.”
Importance of coordination
Co-ordination is essential at every level of management for achieving harmony of individual efforts. Where sub-division and departmentalization is essential, co-ordination is all the more important. The important benefits of co-ordination are stated as follows:
1. Good Personnel Relations: Management and staff create cordial human relations through co-ordination. The points of dispute or conflict among different can be settled by mutual discussions.
2. Unity of Direction: Coordination helps in creating unity of direction. Different segments of the business may set different goal. The coordination process helps in synchronizing various efforts. It motivates various employees to view their work from the standpoint of the business.
3. Efficiency and Economy: Coordination promotes efficiency and economy in the organisation. By coordinating activities the efficiency is brought in the working. It also helps in avoiding delays and eliminating duplication of efforts.
4. Size and geographical coverage: An organisation of large size has greater chances of conflicts and requires coordination at each level. Similarly, organisation having several units, departments and branches located at different places need to be balance and harmonise.
5. Helpful in Developing and Retaining of Personnel. Co-ordination by synchronizing various activities helps in promoting team spirit among organisational personnel. There will be no conflict or confusion in division of work and everybody will try to improve his own performance.
6. Coordination is an Essence of Management: Coordination, no doubt is the essence of management because all the managerial functions cannot be completed without proper coordination. It makes coordination as the soul of managerial operations. The significance of co-ordination can be verified by the fact that management experts such as Henry Fayol, R.C. Davis and Allen regard co-ordination as separate function of management. Coordination aims at creating harmonious relationship between departments, employees, manager and between workers and management. Effective coordination results in unity of action, Inspite of individual differences.
Or
(b) “Management is considered to be both an Art and Science”. — Explain. 8
Ans: Management As a Science: Science is defined as a systematized body of knowledge and it uses scientific methods of observation measurement, experimentation etc. Science may be normative and positive both. Its principles are exact and university applicable. Similarly, Management has systematized body of knowledge and its principles are evolved on the basis of observation and are applicable universally. Management is also considered as a science since it is based on certain definite principles and particular methods are applied to solve various problems before the management personnel. But at the same time it should also be born into mind that management cannot be given the place of science like Physics, Chemistry etc. It is not as true and full of facts as the natural sciences are in their subject matter. There are several reasons which do not allow management to be considered as pure science. These are:
a) Universally unverifiable: Management principles are not universally verifiable.
b) Modified plans and policies: Unlike science, managers are deals with government, employees, customers etc. who are human beings and it is not possible to hold human beings constant and any prediction about these factors is impossible.
c) Based on imaginary considerations: Management principles and concepts are based on imaginary considerations like human behaviour, etc. Its principles when executed do not provide exact results.
d) Incomprehensive: Various managerial techniques are new and not known to each and every manager due to lack of proper training. A manager prefers other ways to solve managerial problems.
Management As an Art: Art refers to the way of doing specific things i.e. it indicates “how an objective is to be achieved. It is the skill and ability to achieve the desired results. Art is the practical application of skill and ability guided by certain principles or truths. Management is an art in the sense that it calls for ability and skill to translate scientific management knowledge into meaningful practice. The art of management consists in understanding the diverse managerial and organisational situations and in applying relevant management concepts and methods to the practical realities. Managers have to be creative and innovative in their thinking and have to rely on their own previous experience in every situation. Management is also an art in the sense that management involves blending and balancing diverse interests and concerns, at a point of time and over a period of time. In short, Management is considered as an art because of the followings reasons:
a) The process of management involves the use of ability and skills.
b) The process of management is directed towards the accomplishment of organisational objectives.
c) It is creative in the sense that it is the function of creating productive situations needed for further improvements.
d) Management is personalized in the sense that every manager has his own approach to problems.
Management is both a science as well as an art. The science of management provides certain principles that can guide managers in the professional efforts, while the art of management deals with tackling every situation in an effective manner. Planning and organizing emphasize the science of management while direction, communication motivation coordination and control emphasize art of management. Getting work done through people is an art of management.
21. (a) Why planning is considered to be a primary function of management? Explain the concepts of policy and rule. 2+3+3=8
Ans: Planning can be define as “thinking in advance what is to be done, when it is to be done, how it is to be done and by whom it should be done.” In the words of Alfred and Beatty,” Planning is the thinking process, the organised foresight, the vision based on facts and experience that is required for intelligent action.”
In simple words we can say, planning bridges the gap between where we are standing today and where we want to reach. Planning is of vital importance in the managerial process. No enterprise can achieve its objectives without systematic planning. “Planning is the heart of management”. It is also considered to be primary function of management as every activity needs to be planned before it is actually performed. In other words, planning precedes all other managerial functions and provides the very basis for organising, staffing, directing and controlling.
Policies: Policy can be defined as organisation’s general response to a particular problem. In simple words, it is the organisation’s own way of handling the problems. Example: Different business firms may follow different sales policies as stated below: “We don’t sell on credit”; “It is our policy to deal with wholesalers only.”
Features of policies:
a) Policies are guidelines which facilitate the achievement of predetermined objectives.
b) They are general statements.
c) Policies describe what is to be done under different situations.
d) Policies are less rigid.
Rules: Rules clearly indicate what is to be done and what is not to be done in a particular situation. Strict actions can be taken against persons who violate the rules. Rules are guideline designed to guide behaviour. For e.g., there can be rule of ‘Keep Silence’ in a library or ‘No smoking’ in a factory.
Features of rules:
a) Rules are norms regarding behaviour of employees.
b) Rules are specific statements.
c) Rules describe what is to be done and what is not to be done by the employees.
d) Rules are very rigid.
Or
(b) What is meant by planning? Discuss the steps involved in the planning process. 3+5=8
Ans: Planning can be define as “thinking in advance what is to be done, when it is to be done, how it is to be done and by whom it should be done.” In simple words we can say, planning bridges the gap between where we are standing today and where we want to reach.
In the words of Alfred and Beatty,” Planning is the thinking process, the organised foresight, the vision based on facts and experience that is required for intelligent action.”
Planning Process: The development of goals, strategies, task lists and schedules required to achieve the objectives of a business is called planning process. This process is a fundamental function.
Steps in the Process of Planning
1. Setting organizational objectives: The first and foremost step in the planning process is setting organizational objectives or goals, which specify what the organisation wants to achieve.
2. Developing planning premises: Planning is concerned with the future, which is uncertain. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called premises.
3. Identifying alternative courses of action: Once objectives are set and assumptions are made, then the next step is to identify all possible alternative courses of action.
4. Evaluating alternative courses: The positive and negative aspects of each proposal need to be evaluated in the light of the objective to be achieved, its feasibility and consequences.
5. Selecting the best possible alternative: This is the real point of decision making. The best/ideal plan has to be adopted, which must be the most feasible, profitable and with least negative consequences. Sometimes, a combination of plans may be selected instead of one best plan.
6. Implementing the plan: Once the plans are developed, they are put into action. For this, the managers communicate the plans to all employees very clearly and allocate them resources (money, machinery, etc.).
7. Follow-up action: The managers monitor the plan carefully to ensure that the premises are holding true in the present condition or not. If not, adjustments are made in the plan.
22. (a) Define financial management. What are the objectives of financial management? 2+6=8
Ans: Ans: Business Finance or Financial management refers to that part of the management activity which is concerned with the planning, raising, controlling and administration of the funds used in the business. Its main objective is to use the funds of the business in the most appropriate way.
In simple words we can say financial management refers to “Efficient acquisition of finance, efficient utilisation of finance and efficient distribution and disposal of surplus funds for smooth working of company.”
Objectives of financial management:
Efficient financial management requires existence of some objectives or goals because judgment as to whether or not a financial decision is efficient is to be made in light of some objective. The two main objectives of financial management are:
1) Profit Maximisation: It is traditionally being argued, that the objective of a company is to earn profit, hence the objective of financial management is profit maximisation. Each alternative is to be seen by the finance manager from the view point of profit maximisation. Profit maximization causes the efficient allocation of resources in competitive market condition and profit is considered as the most important measure of firm performance.
2) Wealth maximisation: The second objective of financial management is wealth maximization. The concept of wealth in the context of wealth maximization objective refers to the shareholders’ wealth as reflected by the price of their shares in the share market. Therefore, wealth maximization means maximization of the market price of the equity shares of the company. The objective of wealth maximization implies long-run survival and growth of the firm.
In addition to the above, there are some other objectives of financial management which are stated below:
a) Financial management helps in ensuring the regular supply of funds to the related concern.
b) Financial management ensures the optimum utilization of funds.
c) It helps in investing in safe areas, so that the great R.O.I. can be achieved.
d) Financial management helps in planning a good Financial Structure. There should be maintained a fair balance between the debt and Equity Capital.
(b) What is capital structure? Mention few factors that influence capital structure. 2+6=8
Ans: Capital structure refers to the mix of sources from where long term funds required by a business may be raised i.e. what should be the proportion of equity share capital, preference share capital, internal sources, debentures and other sources of funds in total amount of capital which an undertaking may raise for establishing its business. In simple words, capital structure means the proportion of debt and equity used for financing the operations of business and it is calculated by the following formula: Capital structure = Debt/Equity.
Following factors are to be considered before determining capital structure.
1. Cash flow position: If cash flow position of the company is sound, then debt can be raised and if cash flow is not sound debt should be avoided and it must employ more of equity in its capital.
2. Interest coverage ratio: It is the ratio that expresses the number of times the Net profit before interest and tax covers the interest liabilities. Higher the ratio better is the position of the firm to raise debt.
3. Control: Issue of Equity shares dilutes the control of the existing shareholders, whereas issue of debt does not as the debenture holders do not participate in the management. Thus if control is to be retained, equity should be avoided.
4. Cost of debt: If firm can arrange borrowed fund at low rate of interest then it will prefer more of debt as compared to equity.
5. Stock market conditions: If the stock market is bullish, the investors are adventurous and are ready to invest in risky securities. In this case, equity can be issued even at a premium. Whereas in the Bearish phase, when the investors become cautious, debt should be issued as there is a demand for fixed cost security.
6. Regulatory framework: Before determining the capital structure of a company, the guidelines of SEBI and concerned regulatory authority is to be considered.
7. Flexibility: Excess of debt may restrict the firm’s capacity to borrow further. To maintain flexibility it must maintain some borrowing power to take care of unforeseen circumstances.
8. Tax rate: As interest on debt is treated as an expense, it is tax deductable. Dividend on equity is the distribution of profit so is not tax deductable. Thus if the tax rates are high, issue of debt is an attractive means as it is economical in nature.
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