Commerce Class XII-Selection Answers

(i)                  How does change in social environment affect a business?

Ans: Social environment consists of all the social and cultural forces within which business operates. It consists of social set-up, cultural, moral , ethical values of society, standard of living, tastes, preferences, education levels etc. It exercises significant influence on the businesses. Demand of branded consumer items is increasing rapidly as people often spend more in order to boost up their social image. Life styles and needs of people are changing with the change in social environment.

(ii)                State two importance of controlling.

    Ans: The two importance of controlling are as follows:

(a)    Facilitates decision making: Controlling helps in deciding future course of action when there is deviation between standard and actual performance.

(b)   Facilitates Co-ordination: control helps in co-ordination of activities through unity of action. Every manager will try to co-ordinate the activities of his subordinate in order to achieve departmental goals.

iii) What do you mean by “Encoding and “Decoding” in the process of communication?

Ans: Encoding and Decoding are important elements or steps in the process of communication. Encoding is the use of appropriate verbal or non-verbal language for transmitting the message. The sender translates the idea or message into a language (words, symbols or gestures) which is easily understandable by the receiver.

Decoding- means the conversion of the message by the receiver into meaningful terms. The receiver interprets the message to derive its meaning. The effectiveness of communication depends on how the receiver decodes the message.

iv) Name two supply functions of marketing?

Ans: The two supply functions of marketing are as follows:

(a)    Transportation: Goods are used for consumption or use purpose and these must reach the consumers in proper time. Transportation is considered to be an important function of marketing as it creates place utility by eliminating barrier of distance between producer and consumer.

(b)   Storage & Warehousing: Storage or warehousing is considered to an important function of marketing since it creates time utility as it preserves goods and brings equalization of demand and supply by bridging the gap between the time of production and time of consumption.

(v)    What is meant by Installment credit?

Ans: Instalment credit is a method of lending where assets are sold and the payments are received in instalments. Banks may help their clients in purchasing some assets from manufacturers or suppliers. The payment is made by the bank to the seller on behalf of its clients. Bank recovers the amount from the client in pre-decided instalments. Each instalment includes interest and part of principal amount. The amount of loan is recovered through instalments.

(vi) Give two advantages of public deposits from company’s view point.

Ans: The two advantages of public deposits from company’s view point are as follows:

(a)    Loans without mortgage of assets: The company is not required to mortgage its assets with the investors.

(b)   Non- interference in the management: Depositors do not have a right to participate in the management of the company.

(vii) Explain the concept of “Authority” and “Responsibilty”.

Ans: Authority and Responsibility are important elements in the process of delegation.

Authority is the grant of authority by the superior to the subordinate so that the assigned task is accomplished. The subordinate can only accomplish the work when he has the authority required for completing the task. Authority is the power to order or command, delegated from superior, to enable the subordinate to discharge his responsibility.

Responsibility: Responsibilty is the assignment of work or duty to the subordinate. The superior asks his subordinate to perform a particular task in a given period of time. It is the description of the role assigned to the subordinate.

(viii) Mention any two specific differences between product and service.

Ans:

Product	Service
(a)    Products are tangible in nature and can be stored. (b)   Products are separable form source. Example:  T.V. , washing machine, refrigerator, furniture, vehicle, etc.	(a)    Services are intangible in nature and cannot be stored. (b)   Service is inseparable form. source. Example: electricity, transportation, insurance, banking etc.

(ix) What is meant by “principle of equity” as laid down by Henry Fayol?

Ans: Equity means justice and kindliness. Fayol was of the opinion that to encourage workers to fulfill their duties with devotion and loyalty management should deal with employees with equity-based kindness and justice. There should neither be nepotism and favourtism and all should be given just and fair treatment.

(x) Expand the term i) EXIM Bank- Export and Import Bank   ii) AGMARK- Agricultural Mark    iii) ISI- Indian Standard Institution   iv) IRCI- Industrial Reconstruction Corporation of India.

SECTION-B

(60 Marks)

(Answer any five questions)

QUESTION 2

(a)    Planning and Controlling are mutually interdependent. Explain.     [5]                                                                                                                                     

Ans: Planning is looking ahead. It is taken before taking up any activity. Planning is essential as it forms the basis of judging actual performance. The standards for performance are set at the level of planning and then efforts are made to reach them. Controlling helps in knowing whether the performance goes as per the standards. In case of any deviations between standard performance and actual performance, remedial measures are taken at the earliest.

Planning and controlling are closely interrelated and interdependent functions of management. Without planning there is no basis for controlling. Planning is prerequisite for controlling. Controlling may not prove effective unless actual performance are measured and compared with standard performance. These standard or predetermined goals are laid down in planning. Plans provide the standards for controlling. Similarly, planning serves no purpose in absence of controlling. Controlling helps to observe the deviation and take remedial action to achieve the desired goal. Control is necessary to ensure that the planned results are achieved. Controlling improves future planning by providing useful information. Thus, we can conclude that planning and controlling are inseparable twins of management.

(b)   Explain  any four functions of  a supervisor.[4]

Ans: The functions of supervisor can be discussed as below:

(i)                  Issuing Orders and Instructions: The supervisor issues orders and instructions for the execution of work. Supervisor helps the new employees to get familiar with the work environment and provides job training to them.

(ii)                Motivating workers: Supervisor motivates the worker towards better work performance and creates enthusiasm and team spirit among them by appreciation and recognition of job well done.

(iii)               Guiding Subordinates: Supervisor has to guide and advise his subordinates. He has to make the subordinates familiar with the plans and policies of management.

(iv)              Handling Grievances: The supervisor listens to the grievances and complaints of workers. He serves as a link between the workers and the management. He communicates the grievances and suggestions of workers to higher authorities.

(c) Discuss any four factors to be considered in determining the suitable capital structure of a company. [4]

Ans: Capital structure means the types of securities to be issued and the proportionate that make up the capitalization. The factors which must be considered in determining the suitable capital structure can be discussed as follows:

(i)                  Growth and Stability of Sales: The capital structure of a firm is highly influenced by the growth and stability of its sale. If the sales of a firm are expected to remain fairly stable it can raise a higher level of debt.

(ii)                Cost of Capital: Cost of capital refers to the minimum return expected by its suppliers. The capital structure should provide for the minimum cost of capital. While formulating a capital structure an effort must be made to minimize the overall cost of capital.

(iii)               Nature and Size of a firm: A public utility concern has  a different capital structure as compared to other manufacturing concerns. Public utility concern use more debt because of stability and regularity of earnings while a concern which cannot provide stable earnings will have to rely on equity capital.

(iv)              Flexibility: Capital structure of a firm should be capable of being adjusted according to the needs of the changing conditions. Business concerns should be able to additional funds without any difficulty and delay.

QUESTION 3

(a)    “Coordination is an essence of management”. Comment. [5]

Ans: Refer class notes.

(b)   State any four differences between a share and a debenture. [4]

Share (a)    Shareholders are the owners of the company. (b)   Shareholders have full voting rights. (c)    Shareholders are paid dividend out of profits. (d)   Shares are not redeemable except redeemable preference shares.

Debenture (a)    Debenture holders are the creditors of the company. (b)   Debenture holders do no have voting rights. (c)    Debenture holders are paid interest irrespective of profits. (d)   Debentures are usually redeemable.

(c)    Mention any three factors that influence the price determination of a product. [3]                                                                                               Ans: The three factors that influence the price determination of a product are as follows.

(i)                  Demand: The demand for a product or service influences the price. When the demand for a product is more then higher price may be charged. On the other hand a lower price may be charged if demand for the product is low.

(ii)                Cost Factor: The cost of a product is an important element in price fixation. Every price should cover the cost of production.

(iii)               Objectives: If the objective of the firm is to maximize profits then it will try to charge higher price. On the other hand if the objective of the firm is to increase its market share and to maximize sales then price will fixed lower.    

QUESTION 4

(a)    Discuss any four methods of providing loans and advances by commercial banks. [4]

Ans: Commercial banks lend money to businessmen and other persons in the following forms:

(a)    Cash credits: Banks may allow the borrower to borrow money up to a certain limit against the security of stock or marketable instruments. The borrower is required to pay interest on the amount. The borrower can also keep the surplus funds in the bank and also enables him draw funds as and when required.

(b)   Bank Overdraft: Banks may allow the customers to overdraw from their deposit accounts with a specified limit usually for a short period of time. The bank charges interest on the overdrawn balances. This facility is usually provided to the financially sound customers.

(c)    Discounting of Bills: Customers can get financial assistance from the banks by discounting their bills of exchange, promissory notes etc. Banks usually pay a price lower than their face value. Bank charges discount in terms of interest for the unexpired period i.e. date of discounting up to the date of maturity of the bill.

(d)   Loans and advances: Banks provide loans to individual or business concern on easy terms and conditions against the security of assets or on the personal security of the borrower. The borrower may repay the loans in instalments or in lump sum on the expiry of the period.    

(b)   Explain the steps involved in “Organizing” as a function of management.

Ans: Organizing process consists of following steps:

(a)    Identification and division of work: The first step in organizing is to divide the total work to be done into specific jobs. Division of work is necessary since the entire work cannot be done by a single person. Division of work facilitates specialization of efforts and skills.

(b)   Grouping jobs or activities: Once the total work is divided the next step is to classify or group them into manageable units and place them under the charge of one manager. Similar or related activities should be combined and grouped.

(c)    Assigning duties: Each group of activities is assigned to an individual best suited to perform it as per the qualification, experience, skills etc. Right men should be right responsibility and there should be proper match between job requirements and capabilities of employees.

(d)   Delegation of adequate authority: This helps managers to distribute their work load to others. Delegation lessens the burden of top executives and facilitates quick decision making.

(e)   Defining responsibility relationship: It is necessary to define the relationship between two or more persons who have been working together for a common goal. Each individual should know who his superior is, from whom he has to take instructions and whom to report.

(f)     Providing proper physical facilities: Proper infrastructural facilities like quality materials, proper machines, proper work environment must be provided to the workers for getting the work done in efficient manner.

(g)    Proper coordination:  The activities and efforts of different groups, individuals must be coordinated. Coordinated effort of individuals ensures that the organizational goals are achieved.

(h)   Proper communication: Effective communication is vital for success in management. Coordination is possible only through a proper communication system.                                                                                                                                                                                                  

(c)    Examine the methods by which the objectives of consumer protection can be achieved. [4]

Ans: There are three alternative ways by which the objective of consumer protection can be achieved:

(a)    Consumers’ self help (i.e. consumers’ union)

The consumers can form a common platform. There can be consumer forums which can settle their grievances. Consumers’ can also form an association which can help in educating consumers, awakening consumers and helps them to fight against the malpractices of producers and sellers.

(b)   Self discipline by the manufacturers and traders: The traders and businessmen should adopt fair and just business practices. They should avoid malpractices and monopolistic trade practices. They should provide transparent information about the products and should avoid the temptation of making extra profits by cheating consumers.

(c)    Enactment of laws by the government: The government should regulate business practices in order to protect consumers. The governments of India have passed different Acts in order to regulate production, supply, price, quantity, quality, distribution etc. Examples: Drugs Control Act, 1950, MRTP Act, 1969, Consumer Protection Act, 1986 etc.

QUESTION 5

(a)    Explain in brief “motivation” as an element of directing. [2]

Ans: Motivation is the process of inspiring subordinates to act in a desired manner so as to achieve organizational goals. The term motivation has been derived from the word “motive” which is an inner state that energizes, activates or moves behaviour towards goals.

(b)   Explain three merits and three demerits of line and staff organization. [6]      

Ans: The three merits of line and staff organization are as follows:

(i)      Specialization: Line and staff organization introduces specialization in a systematic manner. Persons with specialized knowledge are appointed to help officers.

       (ii)Better discipline: The unity of command is maintained in this type of organization. The staff personnel do not interfere with the executive work of line officers.

      (iii) Growth and expansion: The line and staff organization is suitable for growth and expansion. The burden of line staff is eased by the appointment of specialists.

The three demerits of line and staff organization are as follows:

(i) Conflict between line and staff personnel: There is a possibility of conflict between line and staff personnel. The staff officers feel ignored at the hands of line officers.

(ii) Lack of responsibility: There is lack of responsibility for staff officials. They are not accountable for the actual results of operations.

(iii) More dependence on staff: The line officer becomes habituated for advice on staff. They refer everything to staff for advice. Over-dependence on staff will make line officers less effective.

(c) Briefly explain any three factors to be considered while preparing a suitable capital plan.   

Ans: The three factors to be considered while preparing a suitable capital plan are as follows:

1. Cost of Fixed Assets: Fixed assets include land and building, plant and machinery, furniture and fittings, equipments, etc. The requirements of capital largely depend upon the amount required to be invested in these assets.
2. Cost of Current Assets: Current assets are those assets which in the ordinary course of business can be converted into cash within a short period.
3. Cost of establishing the business- Expenses incurred in the setting up of the organization and operating losses that are generally incurred in the initial periods of a concern are included under cost of establishing the business.

QUESTION 6

(a)    Briefly outline the social and cultural environment of the business.[3]  

Ans: The social tradition and cultural heritage can influence business decisions. Socio-cultural changes (such as social values, beliefs of people, traditions, customs and conventions, family structure and values system, literacy and education, work culture, awareness of rights, materialism in society, change in life style etc affect the strategies of all business enterprises.

(b)   Explain the principles of scientific management as laid down by F.W. Taylor. [6] 

Ans: Refer previous notes.

(c)    Explain three categories of consumer goods based on consumer’s purchasing behavior. [3[

Ans: The three categories of consumer goods are as follows:

1.       Convenience goods: Goods which are frequently purchased and are relatively inexpensive and for which buyers exert minimal purchasing effort are known as convenience goods. Example- bread, tea, biscuits soaps, newspaper, soft drinks, etc.

2.       Shopping goods: Goods for which buyers spend considerable effort in planning the purchase are known as shopping goods, Examples- Refrigerators, colour TVs, computers, cameras etc. Shopping goods fairly last long and are not purchased as frequently as the convenience goods.

3.       Speciality Goods: Goods which possess unique characteristics and for which buyers devote considerable purchasing effort. It possess brand loyalty and the buyers are not willing to substitute products. Example- watches, shoes, clothes, etc.

QUESTION 7

(a)    Explain the difference between consumer oriented marketing and product oriented marketing.  [3]   

Ans: The difference between consumer oriented marketing and product oriented marketing are as follows:

Consumer Oriented Marketing	Product Oriented Marketing
It is also known as Modern concept and is more than a mere physical transfer of goods.	It is also known as Traditional concept and consists of those activities which effect transfer in ownership of goods.
It is much broader concept and focuses attention on the consumers and satisfaction of their needs. Marketing begins with much before production and continues after sales(after sale service)	It is a narrow concept and marketing begins after the goods are produced and comes to an end with their sale.
Marketing is considered to be two way traffic wherein the marketer provides satisfaction and consumer provides feedback or response to the efforts of the marketer.	Marketing is considered to be one way traffic i.e. focuses only on transfer of goods from producers to consumers. It emphasizes more on the physical process of distributing goods and services.

(b)   Discuss the objectives of communication. [5]

Ans: The objectives of communication are as follows:

1.       Promotion of managerial efficiency: Communication helps in the smooth operation of the management process.

2.       Motivation to employees: It helps in motivating the employees and encourages them to accept new ideas for the completion of the work. It leads to better employer employee relations.

3.       Job satisfaction to employees: The employees get better education, training and knowledge about the modern methods of production due to modern communication systems.

4.       Quick implementation of decisions: Effective communication system helps to implement decisions quickly.

5.       Cooperation through understanding: It encourages employees to put forth genuine efforts in performing work. It ensures efficiency in work in all aspects.

(c)    Mention the sources of finance for i) Sole Proprietorship ii) Partnership and iii) Joint Stock Company forms of business organization. [4]

Ans: Sole Proprietorship:  In these form of business the proprietor himself contributes the capital. The capital depends on the financial position of the proprietor. The business is carried on a small scale hence less capital is required in such undertaking. The proprietor can raise loans from outside sources to a limited extent.

2. Partnership: The capital base of partnership form of business is bigger than that of a sole trader business since the business is carried on a medium scale. The partners contribute capital of the business as per an agreed ratio. A partnership firm can also raise loans from banks and financial institutions.

3. Joint Stock Company: A public company can raise huge resources by issuing securities like shares, debentures and bonds and by accepting public deposits. In addition it can raise loans from banks and financial institutions to meet its short term and long term financial needs. However, a private limited company cannot raise capital from the public.

QUESTION 8

Write short notes on:                                                                                [4X3=12]   

(a)    Management by exception.

Ans: Refer class notes.

(b)   Classification of working capital.

Ans: Working capital refers to the capital required to meet the day to day expenses of the business. It is represented by excess of current assets over current liabilities. Working capital can be classified into permanent working capital and temporary working capital.

Permanent working capital refers to the minimum amount which is required in the form of working capital and to operate at a minimum level of activity. It is generally financed from long term sources and is locked up in current assets. It can further be sub divided into initial working capital and regular working capital.

Temporary working capital: Temporary working capital refers to that part of working capital which is needed over and above the permanent working capital. It is fluctuating in nature and is known as variable working capital. The amount of working capital depends on the (a) the extent of extra demand during season time and (b) exigencies of the urgent circumstances. It can further be sub- divided into  seasonal working capital and special working capital.

(c)    Tangible and intangible planning premises.

Ans: Tangible premises are those premises which can quantified or expressed in quantitative terms (i.e. working days, volume of production, sales volume, etc). It can be measured and expressed in quantitative terms.

Intangible premises are those factors which cannot be quantified. It is of qualitative nature (i.e. goodwill of the concern, honesty of employees, motivation among the workers etc)

(d)   Money market and Capital market.

     Ans: Money market is a specialized market which provides short term finances (less than a year) to business enterprises through a network of banking systems. Example- call market, Treasury bills etc.

Capital market is a specialized market which provides long term finance to business enterprises.