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#GrowWithGreen Grade XII Business Studies Top 100 Important Questions
#GrowWithGreen
Grade XIIBusiness Studies
Top 100 Important Questions
Quick Analysis
Estimated Chapter-wise Weightage
Section A : 50 Marks
(Principles and Functions of
Management)
Marks Section B : 30 Marks
(Business Finance and
Marketing)
Marks
Ch.1 Nature and Significance of
Management
16 Ch.9 Financial Management 15
Ch.2 Principles of Management Ch.10 Financial Markets
Ch.3 Business Environment Ch.11 Marketing Management 15
Ch.4 Planning 14 Ch.12 Consumer Protection
Ch.5 Organising
Ch.6 Staffing 20
Ch.7 Directing
Ch.8 Controlling
Section C : 20 Marks (Project Work)
On the basis of the previous year trends we can say that the chapters- Planning, Organising,
Staffing, Directing, Financial Markets and Marketing are more important. However, a thorough
practice and study of all the chapters is required! So, do not miss any chapter!
Difficulty Level Analysis
Business Studies Board Paper
Analysis of Difficulty Level (% share) over the last three years
Year Easy Average Difficult
2016 36% 34% 30%
2017 44% 32% 24%
2018 35% 38.75% 26.25%
From the trend it can be seen that in 2016 the difficulty level was relatively higher as compared
to last two years. However, with a rise in the difficulty level in 2018 as compared to 2017, we
can expect that in the upcoming exam, the difficulty level might range between 20-30%.
Also, it was seen that most of the questions in all three years were based on NCERT with lines
being handpicked from the NCERT book. So, a thorough study of NCERT book is a must!
Not only this, since last two years it has been seen that 60% of the paper is based on HOTS and
Case Studies based questions. So, this year as well such kind of questions will be expected.
So, practice hard and all the best!
TOP 100 QUESTIONS IN BUSINESS STUDIES
Q. 1 Mr. Rameshwaram is the CEO of a multinational company. At which level of management
does Mr. Rameshwaram work? What are his key functions?
Answer
Mr. Rameshwaram is part of the top-level management. The following are his key functions:
i. He makes efforts to coordinate the different functions of management.
ii. He participates in the planning process and formulates the organisational objectives.
iii. He analyses the various external forces that affect the functioning of the organisation and tries
to bring in changes in the organisation.
iv. He is responsible for the overall welfare of the organisation.
Q. 2 Management as an art and as a science are not mutually exclusive but complement each
other. Comment.
Answer
Management fulfils the criteria of both an art and a science, as the following points explain.
Management as an art
Management satisfies the following criteria for it to be called an art:
i. Existing literature: All art forms possess a defined body of knowledge and literature.
Likewise, management also has a literature of theoretical knowledge and learning. Various
theories and principles, such as Henry Fayol's principles of management, Taylor‟s scientific
management theory, have been developed that guide the managers in their working
ii. Dynamic application: Art is the personalised application of existing knowledge—individuals
use the basic knowledge using their own powers of imagination. Just as dancers use the basic
dance steps in their own creative way, managers use the available theories and principles as per
the situation in their own unique manner.
iii. Practice and creativity: Art involves practice and innovation. Just as two writers can
describe a given situation differently based on their unique interpretations, two managers can
apply management principles differently to their situations.
Management as a science
As a science, management fulfils the following criteria:
i. Systematic body of knowledge: Just like science, management also has its own body of
principles and vocabulary. However, unlike in science, no exact cause-and-effect relationship
can be established in management, because management deals with human behaviour—as
human behaviour is subject to change, the outcome of theories varies. Despite this, management
fulfils this criterion of science to some extent as scholars have identified certain principles that
act as guidelines for management.
ii. Theories based on experimentation: Scientific principles are based on continuous
observation. Similarly, the principles of management have also been developed over the years
based on repeated observations.
iii. Universal validity: Scientific principles have universal validity. Management theories, too,
are valid to a great extent, if not universally valid, and act as general guidelines for managers.
Thus, we can say that management fulfils the criteria of both an art and a science.
Q. 3 „Profession‟ refers to a line of work requiring skills and specified educational
qualifications.‟ In the light of the given sentence, state the characteristics of a profession. Can
management be considered a full-fledged profession?
Answer
The following are the basic characteristics of a profession:
i. Systemised knowledge: The study of a profession is based on a systemised body of knowledge
comprising numerous principles. This knowledge can be gained through professional colleges.
ii. Professional association: A professional is usually affiliated to an association that regulates
the entry, functions and code of conduct of its members. In India, to practise chartered
accountancy, an individual must be a member of the Institute of Chartered Accountants of India.
iii. Restriction to entry- Specific qualifications or degrees are required to be a professional. In
other words, entry to a particular profession is restricted through its specific qualification
requirements. For instance, to be a doctor an individual must hold an MBBS degree.
iv. Code of conduct: Every profession follows a particular code of conduct framed by the apex
authority that regulates it s functioning. These codes of conduct acts as a guiding principle for
the ethical behaviour of its members.
To some extent management also satisfies the criteria of a profession. For instance management
also has its own body of knowledge developed over years with continuous experimentation and
observation. This knowledge can be attained through various colleges and institutes that offer
management degree and diploma courses. As the persons who hold these degrees are preferred
over others so, this restricts the entry into practice of management as a profession. These degree
and courses restrict the practice of management. Management also fulfils the criteria of
professional association. There are associations such as (All India Management Association) that
regulates and guides the functioning of its members.
Thus, it can be said that to some extent management satisfies the criterion for it to be called a
profession.
Q. 4 „Coordination in today‟s world includes different aspects that highlight the various nuances
of its nature.‟ In the light of the given statement, explain the various features of coordination.
Answer
Coordination is said to be the essence of management. It unites the functioning and efforts of
various employees for the achievement of the common goals and objectives of an organisation. It
forms the link between the various functions of management. The following are the
characteristics that highlight the nuances/features of coordination .
i. Group activity: Coordination is said to be a group activity as it integrates the efforts of various
individuals for the achievement of common objectives. In other words, it unifies the collective
efforts of the employees for the achievement of set targets or goals.
ii. Binding force: The main purpose of coordination is to unify the actions of individuals. It acts
as a force that binds the various functions of management. It ensures that the people of an
organisation work together towards the accomplishment of the organisational goals.
iii. Continuous process: Coordination is a continuous process. It creates a channel between the
functions of management. Coordination starts right from planning, and continues till controlling.
It ensures that work is being performed according to the planned targets.
iv. All-pervasive function: Coordination is a pervasive function. That is, it is performed at all the
levels of management. It is practised by the managers of all departments at every level in order to
ensure unity of action.
v. Responsibility of all managers: It is the responsibility of every manager of an organisation to
coordinate the organisational activities. The top-level managers work towards coordination to
ensure the overall welfare of the organisation. The middle-level managers practise it to ensure
the coordination between the top and lower levels. The operational level managers perform it to
ensure that work is done according to the targets.
Q. 5 Pinky, Director of „SPD Ltd.‟, decided to form a special unit that would be responsible for
estimating the requirement of inputs by various divisions. Now, every department would need to
take approval from this unit before the purchase of inputs. State and explain the function of
management being referred in the given situation?
Answer
The function of management being referred to is „organising‟. Under organising, decisions are
taken about what task is to be done, when it is to be done and by whom. Organising identifies the
activities and tasks and groups them into departments or units. Moreover, under organising
authority is defined and hierarchical structure is established in the organisation. In other words,
organising contains identifying the work, dividing them and assigning the authorities and
reporting relations in the organisation. Proper organising leads to both effectiveness and
efficiency in the organisation.
Q. 6 Describe any five reasons which clarify that management is gaining importance day-by-day.
Answer
Management is gaining importance day by day. It forms an integral part of all types of
organisations irrespective of their size, geographical location, production line, etc. The following
points highlight the importance of management:
(i) Helps achieve goals: Management aims at achieving the overall goals of an organisation. It
organises and directs the efforts of all the employees in one common direction. Besides
organisational goals, management also helps in achieving the personal goals of individuals.
(ii) Increases efficiency: While aiming at achieving goals, management works to increase
efficiency. Increasing efficiency and effectiveness helps reduce costs and increase productivity
through the optimum utilisation of the resources available.
(iii) Creates a dynamic organisation: Management helps an organisation to adapt to the ever-
changing business environment. With the help of effective planning, management insulates an
organisation against external changes such as changes in political, environmental and
government policies, and technology changes. For example, management helps an organisation
to adapt easily to technological changes by planning and by securing continuous updates about
future technologies in advance.
(iv) Develops society: Management enables an organisation to contribute to society‟s
development. It helps an organisation to provide good quality products at fair prices and generate
employment, thereby promoting economic growth and society‟s welfare.
(v) Helps achieve personal objectives: Every individual working in an organisation has his or
her own personal goals. Management motivates the individuals to achieve not only the
organisational objectives but also their respective personal goals.
Q. 7 „Every organisation consists of a hierarchy of relations.‟ State the principle of management
that is being referred to in the given statement?
Answer
The principle of management referred to is the „scalar chain’. The scalar chain refers to a pre-
defined, formal path of authority and communication in the order of the highest authority to the
lowest. For example, if A is the CEO, A has two paths under him or her: A-B-C and A-D-E. All
employees would follow this chain of authority for communication. For example, if „C‟ wants to
contact „E‟, then C will take the path C-B-A-D-E. That is, C has to first contact the higher
authorities (C-B-A) over him who then transverse the communication to E (A-D-E).
Q. 8 The principles of management aim at optimum utilisation of resources. Explain.
Answer
The resources available to an organisation are limited and must be used optimally. An
organisation must derive the maximum benefit from the resources available and minimise the
costs involved. Management principles help managers to foresee the exact cause-and-effect
relationship of their actions. This helps reduce wastage of resources involved in the trial-and-
error method, thereby ensuring optimum utilisation of resources.
Q. 9 Hari was told by his sales manager, John, to submit the sales report by Thursday. Hari was
working on the report when Om, the finance manager, told him that he should submit the sales
report by Tuesday. Hari was confused about the deadline for the report and was not able to
complete it on time. Which principle of management was violated in the given situation. Explain.
Answer
The principle that was violated is „unity of command‟. According to this principle, an individual
should be answerable to only one boss. If an employee receives orders from more than one
superior, the employee will be confused about whose orders to follow, which will affect the
work. It might also cause a clash of interests and egos among the superiors.
In the given situation, Hari receives orders from two superiors, sales manager and finance
manager. Each of the superior gives him different target dates regarding the submission of the
sales report. As a result, Hari gets confused regarding the actual target for the report and he is not
able to achieve the target. A per the principle of unity of command, he should have received
order from only one of the superiors.
Q. 10 Taylor‟s and Fayol‟s principles are mutually complementary, but they were developed on
the basis of different parameters. Discuss the difference between Taylor‟s and Fayol‟s
contributions in the contemporary business environment.
Answer
Basis of difference Taylor Fayol
Contribution Scientific management or
„Taylorism‟ theory was
propounded by Taylor in 1911.
The general theory of
administration or „Fayolism‟
was propounded by Fayol in
1916.
Personality Taylor was a mechanical engineer
and scientist.
Fayol was a mining engineer
and practitioner.
Principles and techniques He introduced the principles of
scientific management and
functional foremanship along with
techniques such as method study
and motion study.
Fayol introduced 14 principles
of management such as order,
equity and espirit de corps.
Application of principles Taylor‟s principles are applicable
only to specialised situations.
Fayol‟s principles are accepted
universally.
Perspective Taylor‟s principles focus on floor-
level workers.
Fayol‟s principles focus on
workers at higher levels.
Emphasis and Focus The focus is on increasing
productivity and workers‟
efficiency.
The focus is on improving the
overall administration of an
organisation.
Title Taylor is called the „father of
scientific management‟.
Fayol is called the „father of
general management‟.
Q. 11 a. Principles of Taylor and Fayol are mutually complementary. One believed that,
management should not close its ears to constructive suggestions made by the employees, while
the other suggested that a good company should have an employee suggestion system, whereby
suggestions which result in substantial time or cost reduction should be rewarded.
a. Identify and explain the principles of Taylor and Fayol referred in the above para.
b. Name and explain the principle of management according to which a manager should replace
„I‟ with „We‟ in all his conversations with workers.
Answer
a. The two principles that are being regarded in the given paragraph are as follows:
i. 'Cooperation, not Individualism' by Taylor: This can be inferred from the line that
"management should not close its ears to the constructive ideas made by the employees".
This principle emphasizes cooperation among the managers and workers over individualism.
This principle was an elongation of the principle of 'Harmony, not discord'. According to this,
the workers and the manager should work with mutual understanding of each other. The manager
should take care of the labourers. He should share the company gains with the workers; awarding
them with sufficient incentives to work. Similarly, the labourers should willingly work, giving
their best contribution to the company. This will build mutual trust and belongingness. Work and
responsibility should be equally divided and a sense of cooperation and coordination should be
established.
ii. 'Initiative' by Fayol: This can be inferred from the following sentence:
'A good company should have an employee suggestion system, whereby suggestions which
result in substantial time and cost reduction should be awarded'.
According to this principle, workers should be given enough motivation and incentive to work.
They should be inspired to come up with suggestions regarding the work. Although initiatives
should be encouraged, they should be in line with the practices and rules of the organisation. For
example, the managers can ask the workers for suggestions how to increase efficiency. Also,
good suggestions can be rewarded.
b. The principle is „espirit de corps‟. This principle recommends that the employees of an
organisation should work in a spirit of unity and common interests. They should work as a team.
This spirit proves useful especially in large organisations, where achievement of objectives
becomes difficult without teamwork. If a manager uses „we‟ instead of „I‟, then it evokes in each
of his or her subordinates a greater sense of belongingness. The word „we‟ enhances team spirit
by increasing mutual coordination and understanding among the employees, which in turn
improves efficiency and easy achievement of the organisational goals.
Q. 12 'Aapka Vidyalaya' believes in holistic development of students and encourages team
building through a mix of curricular, co-curricular and sports activities. On its founders day a
stage performance had to be put up. A committee of ten prefects was constituted to plan different
aspects of the function. They all decided to use recycled paper for decoration. There was a spirit
of unity and harmony and all members supported each other. With mutual trust and
belongingness the programme was systematically planned and executed. Kartik, one of the
prefects realised that unknowingly the group had applied one of the principles of management
while planning and executing the programme. He was so inspired by the success of the function
that he asked his father to apply the same principle in his business. His father replied that he was
already using this principle.
(a) Identify the principle of management applied for the success of the programme.
(b) State any two features of management highlighted in the above para.
Answer
(a) The principle of management applied for the success of the programme is 'espirit de corps'.
This principle implies that the members should work with a spirit of complete unity and
harmony to achieve the targets and increase the overall efficiency.
Quotation for 'espirit de corps': There was a spirit of unity and harmony and all members
supported each other.
Note: The principle of management applied for the success of the programme can also be
'division of work.' This principle implies that the work should be divided into smaller units or
tasks such that trained specialists perform the task to increase the overall efficiency.
Quotation for 'division of work': A committee of ten prefects was constituted to plan
different aspects of the function.
(b) The features of management that are highlighted in the given paragraph are as follows:
i. Goal Oriented: Management is goal oriented, as it has a pre-defined set of goals towards
which the organisation works. In the given case, the school has a set of pre-defined goals such
as development of students and encouragement of team building. Also, the goal was set for
the perfect execution of the Founder‟s Day programme.
ii. Group Activity: Management is a group activity, as it involves the collective efforts of
various individuals working in the group. In the given case, the efforts of all the students and
prefects were pulled in with mutual trust and support.
Q. 13 Explain any four points that highlight the nature of principles of management.
Answer
The nature of 'principles of management' are as follows:
i. Universally applicable: Management principles can be applied anywhere and everywhere by
all types of organisations irrespective of their size, nature and region. However, the degree of
their applicability would definitely be governed by such factors as the nature of business, scale of
operations etc.
ii. Guidelines: Management principles act as guidelines and are considered to be the general
premises for decision making. However, they do not provide straitjacket solutions to problems as
real life business situtations are cumbersome and dynamic, they call for specialised actions.
iii. Formed by experimentation: Management principles have been developed over years of
research and experimentation and are technical. They pertain to different working situations and
can be modified by the manager as per the situations and the requirements.
iv. Flexible: Management principles are not rigid. They are flexible enough to be used and
molded by the manager as per the need of the hour. This makes application of management
principles in diverse business situations.
Q. 14 Taylor introduced „functional foremanship‟ through eight persons. Explain the functioning
of a foreman and the concept of functional foremanship.
Answer
A foreman is a person who is incharge of the operational level workers and directly oversees
their work. Taylor suggested that to increase efficiency, the foreman‟s performance should
improve. He listed a few qualities , such as intelligence, tact, judgement, etc., that a foreman
should have but found that no single person could have them all. He suggested that instead of a
single person, there should be eight persons to perform the tasks of a foreman. This technique
was given the name „Functional Foremanship‟. According to this technique, the planning and the
production functions should be separated such that there would be one planning incharge and one
production incharge. Each incharge would have four personnel under him/her.
The following are the four persons under the planning in charge:
i. Instruction card clerk: Gives instructions to the workers
ii. Route clerk: Shows the production route
iii. Time and cost clerk: Takes care of time and costs
iv. Disciplinarian: Ensures discipline
The following are the four persons under the production in charge.
i. Speed boss: Ensures timely completion of tasks
ii. Gang boss: Keeps the machines ready for the workers
iii. Repair boss: Ensures that the machines are in working condition
iv. Inspector: Controls the quality of work done
Q. 15 Explain the concept of mental revolution introduced by Taylor.
Answer
Mental revolution implies changing the attitude of workers and managers. According to the
concept, both workers and managers should realise each other‟s importance and work in
harmony for achieving organisational goals and creating a better working environment. While,
on one hand, management should take care of the needs of workers, on the other hand, workers
should put in their best efforts. Both parties should develop a positive feeling, and each party
should remove any suspicion or doubt towards the actions and interests of the other. Thus, the
concept of mental revolution enunciates cooperation and mutual trust between workers and
managers.
Q. 16 a. Explain the following techniques of scientific management :
(i) Time study; and
(ii) Simplification of work.
b. (i) Name and explain the principle of management which requires judicious application of
penalties by the management.
(ii) Name and explain the technique of scientific management which helps in establishing
interchangeability of manufactured parts and products.
Answer
a. (i) Time Study- In this technique Taylor emphasised on setting a standard time limit for
completing any particular job. With the help of time measuring tools, considerable readings were
taken for the time taken to complete a task. On the basis of this a standard time limit is set for
each task. This helped in deciding the number of workers to be employed for the task,
determining their wages, etc. For example, if, on the basis of observations it is determined that
one person can finish making 1 shirt in two hours then, in a working day of 8 hours, each worker
should make 4 shirts.
(ii) Simplification of Work- Simplification means eliminating any unnecessary diversification in
the product. It aims at fuller utilisation of the resources, reducing inventories and increasing the
turnover. It helps in reducing the costs of labour and machines. This technique helps in optimum
utilisation of resources and removes the unnecessary costs related to work.
b. i. The principle of management which requires judicious application of penalties by the
management of an organisation is known as „discipline‟. According to this principle, an
organisation should function with discipline and follow rules and policies. It is important for
both the management and the workers to honour their commitments while carrying out clear and
fair agreements. This ensures smooth working relations in the organisation and creates a
harmonious working environment.
ii. „Standardisation‟ is the technique of scientific management that helps in establishing
interchangeability of manufactured parts and products. „Standardisation‟, as the word suggests,
implies setting of benchmarks for any work or activity. It provides the standards that have to be
followed during the production process. Various other techniques of scientific management, such
as method study, fatigue study and time study, are also based on the concept of standardisation.
Q. 17 Metlapp Networks and Technologies Ltd. is a leader in technology innovation in the
United States, creating products and solutions for connecting the world. It has a large research
and development team which invented the first smart watch, named as W-7. The watch besides
showing the time also monitors few health parameters like heart beat, blood pressure etc.
While in search of markets abroad, the company found that in India, the reform process was
underway with the aim of accelerating the pace of economic growth. The company decided to
take advantage of simplified export procedure and removal of quantitative as well as tariff
restrictions in India.
It set up its office in Jamnagar with a view to capture the Indian market. In a short span of time,
the company emerged as a market leader. Success of the company attracted many other players
to enter the market. Competition resulted in reduction in prices, there-by benefiting the
customers.
(a) In the above paragraph, two major concepts related to government policy have been
discussed. Identify and explain these concepts.
(b) Also, explain briefly any three impacts of these concepts on Indian business and industry.
Answer
a. The two concepts related to the government policy discussed in the question are Liberalisation
and Globalisation.
1. Liberalisation: Liberalisation refers to the removal of controls and restrictions imposed by the
government. They indicated the end of the famous license-permit-quota raj in India.
2. Globalisation: Globalisation refers to the integration of economies of the world. It is the
process associated with increasing openness, growing economic independence and promoting
economic integration in the world economy.
b. The three major impacts of these concepts on Indian business and industry were:
1. Increased competition: As a result of measures such as abolition of the licensing policy,
dereservation and encouragement to foreign direct investment, the competition faced by
industries increased, both internally as well as externally, from foreign enterprises. This increase
in competition was particularly felt in service industries, such as telecommunication, banking
and insurance.
2. Increased demand: With the increased competition, producers increasingly became market-
oriented. They began to produce goods keeping in mind the market demand. Therefore, the
availability of goods and services for the consumers and the quality also increased tremendously.
Thus, consumers gained from quality products and greater variety, and their demand for products
increased.
3. Change in business policies: The government policies under the new industrial policy directly
affected the functioning of business enterprises. As a result, they altered their policies and
operations appropriately.
Q. 18 „No company can successfully survive in a market if it ignores the effects of its business
environment.‟ Elucidate.
Answer
A business environment refers to external forces, such as economic, social, political,
technological or legal forces, that affect the performance of a business organisation. It is
important to any organisation to have an understanding of the changes in its business
environment. A continuous study of its business environment enables an organisation to identify
the forces that affect its functioning and, thereby, helps it to cope with these forces. The
following points highlight the importance of the business environment for the success of a
business organisation.
i. Identification of opportunities: A changing business environment offers many opportunities
for business. A careful analysis of the environment enables an enterprise to identify these
opportunities and take first advantage in competition—that is, gain maximum benefits and move
ahead of its competitors.
ii. Identification of threats: Certain changes in the environment may adversely affect the
functioning of a business enterprise. A study of the business environment helps an enterprise in
the identification of these threats or negative signals, enabling it to take preventive measures.
iii. Accumulation of useful resources: The environment acts a source of inputs such as raw
material, machinery and labour required for the functioning of an organisation. On the other
hand, the environment also initiates a demand for the goods and services produced by the
organisation. Thus, the organisation would be acting wisely by using those resources from its
environment that can be converted into the desired output. This is possible only if the enterprise
has an understanding of what its environment desires and what it can offer.
iv. Adjustments to changes: Business environments are dynamic. Technology, consumer taste
and preference, government policies and political conditions change continuously. An analysis of
the environment helps an enterprise deal with the changes better.
Q. 19 Identify and explain the dimensions of a business environment as reflected in the
following statements.
i. Tastes and preferences of consumers
ii. Government subsidy to jute-producing industries
Also, explain in brief the features of demonetization.
Answer
i. Tastes and preferences of consumers: The statement involves the social dimension of a
business environment. The social environment refers to social forces such as customs, traditions,
social values, social trend, etc. In the given case, as the tastes and preferences of consumers
change, their demand for a product also changes. This affects the production and sales of the
concerned organisations.
ii. Government subsidy to jute-producing industries: The statement involves the political
dimension of a business environment. The political environment consists of all kinds of political
conditions such as peace and stability, law and order, and policy changes by the government. In
the given case, a provision of subsidy encourages the jute industry by promoting the
manufacturing and selling of jute products. The subsidy, therefore, has a positive effect on jute-
producing industries.
Features of demonetization
(i) Measure of tax administration- black money holders had to declare the unaccounted wealth
and pay taxes at penalty rates
(ii) Measure to avoid tax evasion- indicating govt. will not tolerate tax evasion
(iii) Measure of channelizing savings into financial system- by depositing money in banks
(iv) Create ‘cash-less’ or ‘cash-lite’ economy- for increasing financial savings and reducing tax
evasion
Q. 20 Identify and explain the dimensions of a business environment as reflected in the
following statements.
i. „MT Ltd.‟, a company manufacturing alcoholic beverages, found that a new alcohol-production
technique had been introduced that improved the quality of the alcohol produced.
ii. The interest rate on loans for consumer durables has increased.
Answer
i. The situation relates to the ‘technological environment’. The technological environment
comprises the technological improvements that provide new business opportunities for
enterprises. In the given situation, the new technique relates to the technological dimension of
the business environment.
ii. The situation relates to the ‘economic environment’. It consists of economic variables such as
interest rates, income, stock market indices that affect the functioning of the enterprisess. A
higher interest rate on loans for consumer durables reduces the demand for such products,
affecting companies.
Q. 21 Explain the impact of the key policies changes that were initiated by the government—in
the form of liberalisation, privatisation and globalisation—on business and industry.
Answer
The impact of the key policy changes on business and industry is highlighted in the following
points.
(i) Increased competition: As a result of measures such as abolition of the licensing policy,
dereservation and encouragement to foreign direct investment, the competition faced by
industries increased, both internally as well as externally, from foreign enterprises. This increase
in competition was particularly felt in service industries, such as telecommunication, banking
and insurance.
(ii) Increased demand: With the increased competition, producers increasingly became market-
oriented. They began to produce goods keeping in mind the market demand. Therefore, the
availability of goods and services for the consumers and the quality also increased tremendously.
Thus, consumers gained from quality products and greater variety, and their demand for products
increased.
(iii) Change in business policies: The government policies under the new industrial policy
directly affected the functioning of business enterprises. As a result, they altered their policies
and operations appropriately.
(iv) Technological changes: With the increase in competition, firms found new and innovative
ways to survive in the market. They increasingly adopted new technology and engaged in further
research and development.
(v) Need for trained personnel: Owing to innovations and improvements in products and the
application of improved technologies, the demand for skilled, trained and competent personnel
increased. Thus, there arose a need for the development of human resources.
(vi) Greater market orientation: With the increased competition, it became imperative for
business enterprises to increase the production as per the market demand. That is, production
became market oriented.
(vii) Less reliance on budgetary support by public sector enterprises: To survive in an
environment of increased competition, public sector enterprises realised the need for improving
efficiency and productivity. They reduced their reliance on budgetary support to cover their
losses.
Q. 22 Farhan is an intermediary who is engaged in selling the goods of „LT Ltd.‟ to retailers. He
used to charge a fee from LT Ltd. However, he also took bribes from retailers to sell them the
goods at rates cheaper than those fixed by the company. As a result, the company incurred a
huge loss. Which category of environment, specific or general, is being referred to in the given
situation? Explain.
Answer
The category of environment that is being referred to in the above situation is ‘specific
environment’. Specific environment refers to external forces that are specific to a particular
organisation or a company. Such forces affect the organisation directly. As Farhan deals directly
with LT Ltd., his activities affect the performance of the company directly.
Q. 23 A recent rate cut in the interest on loans announced by the Banks encouraged Amit, a
science student of Progressive School to take a loan from State Bank of India to experiment and
develop cars to be powered by fuel produced from garbage. He developed such a car and
exhibited it in the Science Fair organised by Directorate of Education. He was awarded first prize
for his invention.
Identify and explain the dimensions of business environment discussed in the above case.
Answer
The dimensions of business environment discussed in the above case are as follows.
i) Economic Environment- Reference line "A recent cut in the interest on loans announced by
banks."
ii) Technological Environment- Reference line: "Developed cars to be powered by fuel
produced from garbage".
Explanations of aforementioned dimensions of business environment
i) Economic Environment: It comprises the economic variables such as interest rates, income,
stock market indices that affect the functioning of the enterprises. For example, an increase in the
income of the consumers increases the demand for goods and services of the enterprises.
Similarly, a fall in the interest rates of loans for consumer durables increases the spending
capacity, and thereby increases the demand for such products.
ii) Technological Environment: Technological environment comprises the technological
changes and improvements. For example, introduction of computers and the Internet has changed
the working style of the organisations today. Similarly, continuous improvement and innovations
in the technology used in the production improves the quality of production. While on the one
hand, improvement in technology provides new business opportunities for the enterprises; on the
other hand, it is a threat for the enterprises using obsolete technology.
Q. 24 Identify and explain the types of plans that the following statements describe.
i. „The broad contours of action to be taken are provided in order to attain the defined
objectives.‟
ii. „General statements are formulated in order to guide organisational thinking and efforts in a
particular direction.‟
iii. „Routine steps are specified in a chronological order.‟
iv. „The manner in which various tasks or steps are to be carried out is defined.‟
v. „A detailed statement that includes the entire gamut of activities of a project is formulated.‟
Answer
Planning prepares an organisation to deal with future events.
The following are the types of plans described in the statements above.
i. ‘The broad contours of action to be taken are provided in order to attain the defined
objectives.’
The type of plan described is „strategy‟. A strategy provides the broad contours of a plan for
achieving the objectives of an organisation. It includes determining long-term objectives,
adopting the required course of action and allocating the necessary resources.
ii. ‘General statements are formulated in order to guide organisational thinking and efforts in a
particular direction.’
The type of plan named is „policy‟. Policies are the statements that act as a guide to channelise
the efforts of the organisation in a particular direction. They provide the basis for the
interpretation of the organisation‟s strategies and define broad parameters for the functions of the
management. They are usually flexible in nature.
iii. ‘Routine steps are specified in a chronological order.’
The type of plan described is „procedure‟. Procedures are basically routine steps defined in a
chronological order that are to be carried out for the completion of a task. They are steps to be
taken in order to enforce a policy.
iv. ‘The manner in which various tasks or steps are to be carried out is defined.’
The type of plan here is „method‟. Method refers to a systematic manner in which a task can be
performed. It is a plan that considers one step of a procedure at a time and shows how that step
has to be taken in order to reach the desired goals.
v. ‘A detailed statement which includes the entire gamut of activities of a project is formulated.’
The type of plan mentioned is „programme‟. A programme refers to a detailed statement about an
entire project, which includes objectives, strategies, procedure and methods.
Q. 25 „SD Ltd.‟, a multinational company, recruits graduates from different colleges every two
years. It always follows a set plan for the recruitment process. The following are a few of the
objectives stated in the plan.
1. Select a minimum of four students from each college, of whom at least two should be girls
2. Select at least two graduates from backward areas
3. Select at least one student from a Scheduled Caste.
(i) What kind of plan is the company following: a single-use plan or a standing plan? Explain.
Answer
i. The company is following a standing plan, which is prepared for managing repetitive situations
or events. Once prepared, standing plans are followed for a long period as they have a repeated
and continuous use. In the given situation, the company recruits graduates every two years. For
the recruitment, it uses a set plan every time. Thus, the plan that the company has adopted is said
to be a standing plan.
Q. 26 „One can choose from numerous available courses of action to achieve the defined goals.‟
Identify and explain the step under the planning process that is being referred to in the given
statement.
Answer
The step under the planning process that is being referred to is „identifying the alternatives‟.
Once the objectives are set, the managers must identify various alternative courses of action to
achieve the organisational objectives. There can be a number of ways to achieve a desired
objective. These alternatives can be regular and routine or new and innovative. For instance, if
the objective is to lower the cost of production, then this can be done by working upon the
efficiency of the workers, opting for sophisticated low cost techniques, or other such alternatives.
The managers must identify all the possible alternatives.
Q. 27 Aneesh is the manager of a steel company. Recently, the company evolved a new
environmental friendly method of production that reduced wastage of resources and helped bring
down the costs. Aneesh decided to opt for the new method. Explain the term „.
Answer
'Method' refers to the way or manner in which a task can be performed. In other words, method
refers to prescribing a systematic way of doing the tasks. It is a kind of a plan that considers one
step of a procedure at a time and shows how that step has to be taken in order to reach a desired
goal. Devising a method for a task ensures that there is no confusion or doubt and that the actions
of different employees in completing the task are uniform. The selection of an appropriate
method to perform a task saves time and helps in increasing efficiency.
Q. 28 Anil wanted to open a new firm. He took advice from his friend, Ravi, who told him to
first formulate a plan for the business. As Anil had never prepared a plan earlier, he did not know
the steps involved in the planning process. Explain these steps briefly.
Answer
The following are the steps are involved in the planning process.
i. Setting the objectives: Any business enterprise needs to decide upon its objectives, and the
first step in the planning process is to set the objectives. Managers need to put down these
objectives clearly so that they can take the right action to achieve the goals.
ii. Developing the premises: Planning is based on certain assumptions regarding the future.
These assumptions are known as premises. The assumptions are regarding the predictions of the
future which form the basis of the planning process. Thus, for successful planning, the correct
premises should be proposed.
iii. Identifying alternatives: The next step is to identify alternative courses of action that can be
followed. Managers must carefully identify the various alternatives. This involves innovation
and creativity.
iv. Evaluating the alternatives: After identifying alternative courses of action, managers need to
evaluate them. Various alternatives must be weighed on the basis of their utility as against the
consequences involved. Managers must carefully assess the pros and cons of each alternative.
v. Selecting the best course: Selecting the best course of action involves opting for the most
viable in terms of workability, costs and profitability. Here, managers should use their skills and
knowledge. A combination of alternatives may be used instead of a single alternative.
vi. Implementing the plan: Implementation of the course of action requires the involvement of
other functions of management. It includes organising and directing the work according to the
chosen path and policies.
vii. Taking follow-up action: Once implementation of the plan begins, the work must be
continuously supervised by the managers. Keeping an eye on the performance of tasks is
important to ensure that the plan is being implemented properly.
Q. 29 Explain any five limitations of planning.
Answer
The following are five limitations of planning:
i. Rigidity: Planning is said to be rigid because once a plan related to the objectives and the
course of action is formulated, the manager may not be able to change it. Such rigidity in a plan
creates hurdles to resolving unforeseen situations and sometimes causes obstacles in the
achievement of objectives. At times, the managers may require flexibility so as to cope with
unexpected circumstances appropriately.
ii. Lack of suitability for a dynamic environment: Business environment that an organisation
faces is dynamic and thereby, very uncertain. For successful functioning, an organisation needs
to continuously adapt to changes in the business environment. Planning cannot foresee all such
changes and may prove futile in the changed circumstances. This may lead to failure in the
accomplishment of objectives.
iii. Reduced creativity: In any organisation, planning is often done exclusively by the top
management, while the lower and the middle management as well as the rest of the employees
only follow these plans. They are not allowed to deviate from the pre-defined course; rather, they
only implement and execute the plans. Thus, the employees tend to follow the same thinking
pattern as defined by the top management and lose their own creativity. It is possible that they
might have better ideas for the accomplishment of the objectives, but because of a lack of
involvement, they remain unheard.
iv. Gigantic costs: The formulation of plans requires time, effort and money. Thought and
analysis are needed to foresee the future and formulate plans accordingly. In addition, planning
requires scientific calculations involving the rigorous use of figures and facts for formulating the
course of action. This involves huge costs. Moreover, sometimes, it might also happen that the
benefits derived from planning do not justify the costs incurred. Thus, the planning process may
not prove to be of any worth.
v. False sense of security: Planning provides a false sense of security—efficient planning may
not guarantee success. Often, mangers tend to rely on pre-tested plans that have worked well in
the past. However, it cannot be said that a plan that worked well in the past will be successful in
the future. Many unforeseen changes may take place that may lead to the failure of the plan.
Sometimes managers think that planning can prevent problems from occurring, neglecting the
fact that planning only provides a tool for predicting the future. It does not straightaway provide
solutions to problems.
Q. 30 State any five features of planning.
Answer
Planning anticipates what is to be done and how it is to be done. It is an essential activity that
provides the rationale for undertaking policies with the aim of achieving goals. The following are
highlights of planning:
i. Focus on objectives: Planning serves as the guidelines for what goals are to be achieved and
how they are to be achieved. They ensure that the objectives of an organisation are achieved on
time. For this, the management formulates plans, keeping in mind specific goals, and the
managers make sure that the plans are purposeful. For example, if a sales target is to be achieved,
then the organisational plans must reflect this objective.
ii. Stepping stone: Planning serves as the stepping stone for all other functions of an
organisation. It precedes the other functions such as organising, directing, staffing and
controlling. This is because plans state the objectives of an organisation along with the means to
achieve them. The other functions, on the other hand, are planned in accordance with the
objectives. Once the plans are determined, the roles of other interrelated functions fall into place.
Thus, planning sets the basis for the other functions of management.
iii. Pervasiveness: Planning is a function that needs to be performed at all levels in an
organisation. It is not just performed by the top-level managers but at every level of
management. However, its scope differs according to the various dimensions of business. For
example, the top-level managers have to chalk out policies regarding the overall management,
whereas the middle-level managers plan the authority to be assigned to their subordinates, and
the lower level managers set smaller targets for the day-to-day functioning of the organisation.
iv. Continuity: Planning is a continuous process. This is because, after the implementation of one
plan, the need arises for formulating the next plan, keeping in view the new objectives and
circumstances. Moreover, within a plan period, the need arises to modify the plan as per
changing needs and requirements. Thus, planning is a continuous process all along the life of a
business organisation.
v. Choice making: Planning is a process of making choices from among various alternatives in
order to achieve the desired goals of an organisation. These alternatives are related to the
strategies or policies to achieve the organisation‟s goals. Managers need to evaluate these
choices thoroughly and select the most rational scheme to achieve the objectives.
Q. 31 'Planning is an important function of Management.' State any four reasons.
Answer
The importance of planning can be explained through the following points:
i) Renders direction: Planning clearly states the goals and objectives to be achieved. Thus, it acts
as a guide for the actions to be taken in future. They guide the managers about activities to be
done, route to be taken and the objectives to be achieved.
ii) Subdued risk: It helps the managers to anticipate and deal with changes which may arise in
the due course of management, although it does not fully eliminate the problems related to such
changes. This leads to a reduction in uncertainty of the unforeseen events.
iii) Reduces overlapping and wastage: As the managers are well comprehended with the plans
of an organisation, they coordinate the activities together to achieve the organisational
objectives. Thus, in this way, overlapping of work is minimised. As a result, there is minimum
wastage of resources.
iv) Facilitates decision making: Planning involves analysing the future, evaluating the various
courses of action and choosing the best alternative as per the objective. Thus, following a proper
planning process helps managers in taking rational decisions.
Q. 32 The workers of „ABC Ltd.‟ work according to strictly defined rules and procedures. The
rules clearly specify the framework of the company, including the structure of authority and
responsibilities. Which type of organisational system is being referred to here? State three
advantages and three limitations of this structure.
Answer
The system being referred to is „formal organisation‟. Formal organisation is a system of well-
defined rules and regulations that specify the boundary of all organisational jobs. It helps achieve
organisational goals by coordinating the efforts of workers. It is a deliberate process that lays
more emphasis on the work to be done rather than interpersonal relationships. The following are
the advantages and limitations of a formal organisation.
Advantages
i. Reduces confusion: In a formal organisation, unity of command is maintained through a
defined set of relations. This chain specifies who is to report to whom. It helps in reducing
confusion within the working environment and results in timely accomplishment of goals.
ii. Provides high stability: A formal organisation provides stability as it defines the behaviour of
employees. By clearly specifying rules to guide them, it is able to predict the behaviour of the
workers and thereby provides high stability to the organisation.
iii. Avoids duplication of work: Since the responsibilities are clearly defined in a formal
organisation, there is no ambiguity in the role of any member. This helps avoid duplication of
work.
Limitations
i. Delays decision making: Each member of a formal organisation has to follow a pre-defined
chain of relationships. This may lead to procedural delays and delays in decision making.
ii. Limits creativity: In a formal organisation, any deviation from the defined rules and
procedures is restricted. This limits the creativity of the employees as they are not allowed to
practice new ways of working.
iii. Portrays an incomplete picture: A formal organisation lays emphasis on the working
relationships only. It fails to bring out the interpersonal relations of an organisation. Thereby, it
gives an incomplete picture of the organisation.
Q. 33 There are two famous companies, „Khalnayak Ltd.‟ and „Nayak Ltd.‟, which manufacture
laptops. However, their working patterns are different. At Khalnayak Ltd., the decision-making
power is restricted only to the chief executive officer, managing director and chairman. At Nayak
Ltd., the decision-making process involves the top-level managers, the unit heads and
operational level workers. State the two techniques that are being used by the companies for
efficient management. Also state four differences between the two techniques.
Answer
At Khalnayak Ltd., the technique being used is „centralisation‟, in which the decision-making
power is concentrated only in the top-level management. Here, all functions related to policy
making, planning and controlling are taken care of by the top-level management. In contrast, at
Nayak Ltd., the technique being used is „decentralisation‟, in which the decision-making power
is delegated to the lower level managers. In this structure, the power to take action and decide the
policies is distributed at different levels.
The two techniques are different in the following ways.
Basis of difference Centralisation Decentralisation
Authority Authority remains concentrated
only in a few hands at the higher
level of management.
Authority is delegated to the
lower levels of management.
Workload Higher workload on the top-level
managers.
Less workload, as authority and
responsibility are shared.
Scope of delegation Scope of delegation is limited as
power is concentrated in a few
hands.
Wider scope of delegation as
authority can be transferred.
Decision making The decision making is slowed
down as power lies only with the
top management. An issue has to
be considered at different levels
before action is taken.
The decision making is quick as
the authority to take action and
the responsibility to take action
are vested with officials
positioned close together in the
hierarchy.
Q. 34 'This function of management implies implementation of plans and arranging the activities
in a certain order to effectively attain the desired goals'. State the function of management which
is being described and also, state the steps involved in the process of this function.
Answer
The function of management that is being described is 'Organising'. Organising refers to the
procedure of aligning the activities in a certain order. It contains designing the roles and directing
the employees towards the accomplishment of goals. Human efforts along with resources are
brought together and coordinated under this function.
The following are the steps involved in a successful process of organising.
i) Identifying and dividing the work: Under organising, the first step deals with identifying the
various activities. These activities are then divided into smaller units as per pre-defined
objectives. A clear division of work helps in avoiding duplicity and enables smooth functioning.
ii) Creating departments: Herein, the divided actions are further grouped into together into
departments based on the similarity in nature. That is, similar activities are grouped together.
Such departmentalisation promotes specialisation. Departments can be formed on the basis of
several criteria such as working profiles, regions, product, etc.
iii) Assigning duties: The third step under organising deals with assigning the roles and
responsibilities to the personnel. Under each department work is allocated to different members
as per their skill and ability. While assigning the duties it must be ensured that the best suited and
proficient person is selected for the work.
iv) Establishing the relationships: Any organisation needs a proper hierarchic structure to work
efficiently. Every person should know whom he's working under and to whom he needs to
report. Clear establishment of such relationships help in smooth functioning of an organisation.
Q. 35 Amita, the director of „OTC Ltd.‟, did not find enough time to prepare the production
plans of the company because of work overload. Therefore, she entrusted the task to her
subordinate, Suhail. This, on the one hand, provided Suhail an opportunity to prove his potential,
and on the other hand, allowed Amita to focus on other areas of high priority. Explain the
management process involved in the given situation along with its key elements.
Answer
The management process involved in the situation where Amita transfers her work to her
subordinate, Suhail, is „delegation‟. Delegation implies transfer of authority from a superior to
his or her subordinate. It is an essential concept for an effective organisation as it lowers the
burden on the manager and thereby enables the manager to focus on activities that command
higher priority. There are three elements of delegation, namely, authority, responsibility and
accountability.
i) Authority: Authority implies the right to command, direct and take decisions regarding what
is to be done and by whom. The scalar chain in a formal organisation gives rise to authority as it
acts as the link between various jobs and determines the relation of who is to report to whom. It
is a downward flowing channel, i.e. superior commands authority over the subordinates.
ii) Responsibility: Responsibility refers to the adherence and answerability of the subordinate
towards the assigned task. A subordinate should be obedient and loyal towards the duty assigned
to him. The superior-subordinate relationship gives rise to a sense of responsibility.
Responsibility is a downward flowing channel i.e. the subordinate is responsible to his superior.
iii) Accountability: Accountability implies the answerability of the superior for the final
outcome of the work he assigned. Though the superior delegates the work to his subordinate but
he still will be responsible for the final outcome. The superior can ensure the proper functioning
of the subordinate through regular feed-backs and supervision. The concept of being accountable
arises out of responsibility itself.
Q. 36 Samir Gupta started a telecommunication company, 'Donira Ltd.' to manufacture
economical mobile phones for the Indian rural market with 15 employees. The company did very
well in its initial years. As the product was good and marketed well, the demand of its products
went up. To increase production the company decided to recruit additional employees. Samir
Gupta, who was earlier taking all decisions for the company had to selectively disperse the
authority. He believed that subordinates are competent, capable and resourceful and can assume
responsibility for effective implementation of their decisions. This paid off and the company was
not only able to increase its production but also expanded its product range.
(a) Identify the concept used by Samir Gupta through which he was able to steer his company to
greater heights.
(b) Also explain any three points of importance of this concept.
Answer
(a) The concept used by Samir Gupta through which he was able to steer his company to greater
heights is 'Decentralisation'. This is because decentralisation refers to the dispersal of authority
among the lower levels of management hierarchy. This concept promotes the belief that people
are competent, capable and resourceful and can assume responsibility for effective
implementation of their decisions. Thus, Samir is practising decentralisation in his company.
Quotation for Decentralisation: ''Samir Gupta, who was earlier taking all decisions for the
company had to selectively disperse the authority.''
Note: The concept used here is Decentralisation and not Delegation. This is because delegation
has a narrow scope as it is limited to the superior and his immediate subordinate only. The basic
motive behind delegation is to lessen the burden of the superior rather than giving autonomy to
the subordinate. As in the given case, Neeraj is dispersing authority because he believes that the
people are competent to take self-decisions, he is following decentralisation.
(b) The following are the three points highlighting the importance of decentralisation:
(i) Initiative: Decentralisation allows a sense of freedom to the lower managerial levels as it lets
them take their own decisions. It gives them a higher degree of autonomy to take initiative.
Moreover, it promotes a feeling of self-confidence and self-reliance among them. When the
power is delegated to lower level managers, they learn to face new challenges and find solutions
for the problems themselves. This helps in spotting those potential managers who can take the
needed initiative.
(ii) Managerial Competence: Once the authority is delegated to the managers at lower levels, it
provides them the needed opportunity to develop themselves. It provides them with the
opportunity to gain experience and thereby, develop the skills and knowledge to face new
challenges. Decentralisation gives them a chance to prove their talent and get ready for higher
positions. It also helps in pre-identification of the future managers who are well-equipped with
the necessary talent required to deal with managerial problems.
(iii) Active Decision Making: Since through decentralisation, the authority of making decisions
is passed on to lower levels of management, decisions are taken quickly and timely. This is
because the decision can be taken at the nearest points of action which thereby, helps in easy
adjudication of the problems.
Q. 37 What is meant by „functional structure‟ of organisation? Explain any two advantages and
any two limitations of this structure.
Answer
Under a functional organisation, activities of a similar nature are grouped together in various
departments. Each department and specialises in its own work. For example, an organisation can
have many departments, each focussing only on one aspect such as production, human resource,
finance or marketing. Each department in turn reports to one coordinating head. A functional
structure is usually suitable for large organisations which deal with a number of varying
functions requiring a high degree of specialisation. It is suitable for large organisations where
division of work among various departments is necessary.
Advantages of a functional structure
The following are two advantages of a functional structure:
i. Specialisation: Under a functional structure, the various departments of an organisation are
able to specialise in their specific functions. This enhances the efficiency of each department and
thereby improves the overall performance of the organisation.
ii. Better coordination: Activities of a similar nature are grouped together in individual
departments, promoting coordination within the department. This is because the various
activities performed in a department are similar in nature.
Disadvantages of a functional structure
The following are two disadvantages of a functional structure:
i. Lesser emphasis on organisational objectives: A functional structure places more emphasis on
the objectives of each department than on the objectives of the organisation. This is because each
department tries to specialise in its own functions instead of focussing on the organisational
objectives. Thus, a functional structure may lead to the formations of functional empires where
particular activities are given undue importance above the overall organisational objectives.
ii. Conflict: The interests of the departments may not be compatible with one another. For
instance, the sales department may wish to introduce a new incentive scheme for the customers,
but the finance department may not be in favour of the proposal. Such incompatibility may lead
to conflict among departments.
Q. 38 'Organisation is the harmonious adjustment of specialised parts for the accomplishment of
some common purpose or purposes.' In the light of this statement explain any four points of
importance of organising.
Answer
Organising refers to designing the roles and directing the people towards accomplishment of
goals. The following points highlight the benefits of the organising function:
i. Clarity in working relationships: Through proper organising, the working relationships in an
organisation get clearly defined. Such clarity in working relationships helps in avoiding any
ambiguity in transfer of instructions and orders.
ii. Avoids duplication of work: As the various tasks and activities are properly assigned, the
chances of overlapping and duplication of work is minimised. This helps in reducing the wastage
of human and material resources in an organisation.
iii. Coordination: Organising groups similar activities in an organisation into different
departments and units. This leads to better coordination in various tasks and thereby promotes
harmony among the departments and units.
iv. Promotes growth: Organising gives a clear definition of the working relationships of an
organisation. This allows the organisation to diversify and add new lines of activities. With
organising, an organisation can easily grow and expand its operations to new geographical
territories and thereby increase its customer base, volume of sales and profits.
Q. 39 Explain the concept of 'Divisional Structure'. Also, explain any four advantages of
divisional structure.
Answer
Sometimes when an organisation has more than one product line, it groups its activities on the
bases of the product lines. Such grouping of activities is known as divisional structure. In this
process, each division of the organisation specialises in their respective product line. Moreover,
each division performs multiple functions such as production, sales and marketing. In other
words, within each division resides a functional structure. Divisional structure proves beneficial
in situations where the organisation deals in/plans to deal in different product lines. Following
are a few prominent advantages of a divisional structure:
(i) Managerial efficiency: Divisional structure facilitates the development of the managers and
the workers by providing them with numerous working opportunities. Along with product
specialisation, it also leads to the development of skills and knowledge of the personnel. In this
regard, the divisional head also gains a great deal of experience as he is engaged in a vast variety
of functions for which he is responsible. This helps him to grow and become more proficient in
his performance.
(ii) Gauging performance: Under divisional structure, each head is responsible for the profit and
loss of his division. This helps in clear identification of the performances by each department in
an individual manner. This is because once the head is accountable for the revenues and costs of
his department, it becomes easier to gauge the actions of each. This also helps in taking
corrective actions in case of poor performance.
(iii) Flexibility and initiative: Under divisional structure, each division functions independently.
This in turn facilitates quick decision-making. Once the departments are divided, the heads have
the authority to take their own decisions whenever needed. This promotes initiative among the
personnel as they are now able to take decisions at the right place and at the right time.
(iv) Growth: Under divisional structure, the expansion of an organisation becomes a much easier
process. This is due to the fact that in such a system, new divisions can be easily added without
affecting the functioning of other divisions.
Q. 40 Aman Chadha started 'Bulls Eye' a company for providing cyber security solutions to
businesses. Its objective is to prevent, detect and respond to cyber attacks and protect critical
data. He was a hardworking software engineer and an expert in cyber security. His reputation
grew by leaps and bounds as he was not only a person of integrity but also did his work with
utmost honesty and sincerity. The business started growing day by day.
He was delighted when he was offered a big project by the Ministry of Defence. While working
on the project, he found that the volume of work made it impractical for him to handle all the
work by himself. He decided to expand the team. The company maintained a close liaison with a
local engineering college. During a campus placement, Ishan and Vrinda were appointed to work
for the new project.
He found the new employees capable, enthusiastic and trustworthy. Aman Chadha was thus, able
to focus on objectives and with the help of Ishan and Vrinda, the project was completed on time.
Not only this Aman Chadha was also able to extend his area of operations. On the other hand
Ishan and Vrinda also got opportunities to develop and exercise initiative.
(i) Identify and briefly explain the concept used by Aman Chadha in the above case which
helped him in focusing on objectives.
(ii) Also, state any four points of importance of the concept identified in (i) above.
Answer
The concept used by Aman Chadha is Delegation. This is because, Aman found the volume of
work impractical to handle by himself and thus, decided to expand his team. After this, he
delegated the tasks to Ishan and Vrinda so that Aman himself can focus on the objectives. Thus,
here, he is delegating the tasks to his subordinates.
The following points highlight the importance of delegation.
1. Managerial efficiency: By delegating work to the subordinates, the managers can concentrate
on priority areas and also venture into new areas. This freedom from the routine tasks enhances
the efficiency of the managers.
2. Employee proficiency: As the subordinates are entrusted with the responsibility of completing
a task, they get an opportunity to prove their abilities and apply their skills. This helps them to
gain experience and improve their proficiency.
3. Motivation: Delegation provides the employees with psychological benefits, which motivate
and encourage them to give their best to the organisation.
4. Growth: Delegation helps in the preparation of efficient and experienced managers who can
take up leading positions during the growth phase of the organisation. This facilitates easy
growth and expansion of the organisation.
Q. 41 'Steelo Ltd.' decided to set-up its steel manufacturing factory in the backward area of
Orissa where very less job opportunities were available. People of that area welcomed this effort
of 'Steelo Ltd.' To attract people to work in its factory it also decided to provide many other
facilities like school, hospital, market etc. in the factory premises.
'Steelo Ltd.' started earning huge profits. Another competing company asked its production
manager 'Aslam' to investigate the reasons of earning huge profits by 'Steelo Ltd.'
Aslam found that in both the companies there was systematic coordination among the various
activities to achieve organisational goals. Every employee knew who was responsible and
accountable to whom, The only difference was that in his organisation communication took place
only through the scalar chain whereas 'Steelo Ltd.' was allowing flow of communication in all
the directions as per the requirement which lead to faster spread of information as well as quick
feedback.
(a) Identify the type of organisation which permits 'Steelo Ltd.' the flow of communication in all
the directions.
(b) State another advantage of the type of organisation identified in (a) above.
Answer
(a) In Steelo Ltd., informal organisation permits the flow of communication in all the directions.
(b) The another advantage of informal organisation is fulfillment of social needs. An informal
organisation allows for personal communication beyond the officially defined roles. This enables
the employees to interact with like-minded colleagues. This unofficial interaction provides a
sense of belongingness among the employees towards one another and towards the organisation.
Q. 42 Ashish, the Marketing Head, Raman, the Assistant Manager and Jyoti, the Human
Resource Manager of 'Senor Enterprises Ltd.' decided to leave the company.
The Chief Executive Officer of the company called Jyoti the Human Resource Manager and
requested her to fill up the vacancies before leaving the organisation. Informing that her
subordinate Miss Alka Pandit was very competent and trustworthy, Jyoti suggested that if she
could be moved up in the hierarchy, she would do the needful. The Chief Executive Officer
agreed for the same. Miss Alka Pandit contacted 'Keith Recruiters' who advertised for the post of
marketing head for 'Senor Enterprises Ltd., They were able to recruit a suitable candidate for the
company.
Raman's vacancy was filled up by screening the database of unsolicited applications lying in the
office.
(a) Name the internal/external sources of recruitment used by 'Senor Enterprises Ltd.' to fill up
the above state vacancies.
(b) Also state any one merit of each of the above identified source of recruitment.
Answer
(a) The internal/external sources of recruitment used by „Senor Enterprises Ltd‟ to fill the various
positions are listed below.
For the post of Human Resource Manager: Promotion
For the post of Marketing Head: Placement Agencies and Management Consultants
For the post of Assistant Manager: Casual Callers
(b) The following are the merits of above listed sources of recruitment.
Merit of Promotion: Boosts employee morale and induces better performance
Merit of Placement Agencies and Management Consultants: Helps in inducing the right
talent in the organisation because of their expertise and specialisation in the field of hiring fresh
blood.
Merit of Casual Callers: Cheapest source of recruitment.
Q. 43 What is meant by recruitment? Explain any four external sources of recruitment.
Answer
Recruitment refers to the process of searching for and attracting the personnel required for jobs
in an organisation. It is the process of finding potential candidates and getting them to apply for
the jobs.
External sources of recruitment refer to sources outside an organisation. In other words, through
external sources, job vacancies in an organisation are filled by bringing in new people. The
following are four external sources of recruitment.
i. Direct recruitment: An organisation that opts for direct recruitment displays a notice outside
its premises specifying such details as the number of vacancies, the required qualification and the
date of the interview. The applicants collect this and assemble outside the office premises on the
specified date and at the specified time. The selections are then done on the spot.
ii. Placement agencies: Placement agencies provide a nationwide service of matching the
requirement of personnel with the available supply of candidates. The applicants submit their
resumés, along with other details, to the agencies. The organisations with the job positions
contact the agencies with their requirements, and the agencies provide the organisations with the
details of the suitable candidates. They also inform the candidates concerned about the job
vacancies. The organisations can then directly contact the candidates and take up the selection
process. Placement agencies generally charge a fee from both the candidate as well as from the
organisation for their services.
iii. Web publishing: The Internet is often used as a forum by organisations for providing
information about vacancies and also by candidates for announcing their availability. There are
numerous websites that perform the function of matching the demand for personnel with the
availability of candidates. Companies advertise jobs on websites and invite applications from
candidates, and candidates in turn send their applications for various posts through these sites.
iv. Recommendations of employees: Companies request employees to recommend potential
candidates from among their relatives or friends. As the reference has been given by their own
employees, the companies do not need to undertake any preliminary screening or background
check.
Q. 44 Is staffing, a line activity or a staff activity? Support your answer with appropriate reasons.
Answer
Staffing is both a line activity as well as a staff activity. That is, staffing is an indispensable
function of management without which, management is incomplete, and also, a separate role of
management which is played by Human Resource Department. Staffing refers to the function of
management that deals with finding the right people for the right job and keeping the jobs filled
all the time. It is an important aspect of management as it ensures that the right people with the
needed qualifications are chosen for the work. Staffing basically deals with managing the human
resource. Managing this human element is a requisite function of any organisation as it serves the
basis of the level of efficiency of the organisation. Managers here play an important role as they
make sure about the optimum utilisation of the manpower. They watch if there is any vacancy
and also, if any extra manpower is needed. Subsequently, they work on how the recruitment has
to be done, what qualifications are necessary for the applicants to apply for the job, and to what
extent, training is necessary for that particular job. Thus we can say that staffing is a generic
function of management that needs to be performed by each manager of an organisation. This
also defines the success of any organisation as it depends on how effectively this function can be
performed and to what extent the productivity can be increased with efficient staffing.
However, it is seen that organisations that are large in size, maintain a separate department for
dealing with this function of staffing. This department is generally known as 'Human Resource
Department'. Under this department the various tasks of staffing are performed by specialised
managers. Human Resource Department do not only perform the basic function of staffing but
also takes care of the other human relations working in an organisation. It performs other duties
such as maintaining good relations between managers and workers, promoting welfare of the
workers, handling complaints and labour grievances, etc. Thus, we can say that staffing is an
intrinsic part of human resource management as it is concerned with establishing and
maintaining human relations of an organisation.
Hence, we see that staffing is not only a function of management to be performed by managers
such as organising or directing, but also a distinct functional area wherein a separate department
is formed in order to deal with the human relations.
Q. 45 Rahul, the divisional manager of „AK Ltd.‟, resigned from the post. To fill the vacancy,
Ajay, the company director, decided to bring in his cousin, Aman, instead of using other sources
of recruitment. Which type of external source of recruitment did Ajay opt for? State the
advantage of this source of recruitment.
Answer
The source of recruitment that Ajay opted for was „recommendation by present employees‟. The
following are the benefits of this source of recruitment.
i. As the candidate is already known to the organisation through an employee, no background
check is required.
ii. This source is more economical and saves effort and the cost of recruitment.
Q. 46 For proper staffing, „it is important to first identify if there are any jobs vacant‟. After the
vacancies are identified, „a pool of suitable candidates is gathered‟, out of which the best are
selected. „The new recruits are familiarised with the company‟, and then the focus of staffing
shifts to „improving the competence of the selected employees‟. Staffing also takes care of the
„measurement of performances‟ and providing „the right encouragement to increase efficiency‟
while giving out timely compensations. Identify and explain the highlighted steps involved in the
given staffing process.
Answer
The staffing process refers to the procedure of filling vacancies and retaining the recruits. It is a
systematic process that involves the following steps.
i) Estimation of the required manpower-''it is important to first identify if there are any jobs
vacant''
It refers to identifying the number and the kind of persons that are required in the organisation. It
involves two steps-workload analysis and workforce analysis. Work load analysis implies an
estimation of the number and the kind of persons required for various jobs and workforce
analysis implies an estimation of the existing persons. The two step analysis reveals whether
there is any overstaffing or understaffing in the organisation and thereby, forms the basis of the
staffing process.
ii) Recruitment/searching-''a pool of appropriate candidates is gathered''
Recruitment or search refers to searching for suitable candidates for a job, persuading them to
apply for the job and recruiting them.
iii) Induction-''The joiners are made familiar to the company''
Once the selection process has been completed, the selected employees are familiarised with the
working environment. Induction involves giving them a brief overview of the workplace and
introducing them to other employees.
iv) Training and development-''improving the competence of the selected employees''
The staffing process involves training the employees to improve their competence and skills.
Development focusses on the overall growth of the employees by enhancing their thinking and
understanding capabilities so that they can upgrade their knowledge and increase their efficiency.
vi) Appraisal-''measurement of performances''
Performance appraisal is an evaluation of the work of individuals against certain predetermined
standards. The superior provides proper feedback to the employee so that right measures can be
taken to increase his or her efficiency.
vii) Promotions-''right encouragement to increase efficiency''
Every employee needs encouragement and motivation for continuing to work efficiently.
Promotions provide job satisfaction to employees and encourage them to realise their potential.
Q. 47 This source of recruitment may hamper the spirit of competition among the employees.‟
Explain the source being referred to in the given statement. State three benefits of this type of
source.
Answer
The source that is being referred to is „internal source‟. Internal sources of recruitment refer to
the sources that are endogenous to an organisation—i.e., they are available within the
organisation. Here, the organisation recruits personnel from among its own employees.
The following are the benefits of using internal sources.
i. Economical: Such sources are cheaper in terms of time and money. They lower the cost by
saving the expenditure on advertisement and other related processes. Along with this, the money
spent on training of the new employees is also curtailed.
ii. Motivation to employees: As the promotion to higher positions take place from within the
organisation, the employees are motivated to perform to the best of the capabilities so as to get
entitled for the promotions.
iii. Simplifies the selection process: Recruitment through internal sources greatly simplifies the
selection process. This is because the employees are already known to the organisation and thus,
it is easy to evaluate and assess them.
Q. 48 Ankit, the Director of ACE Ltd., realised that for improving the skill and efficiency, a
proper training of the employees is required. Accordingly, he decided to form a training team
that would focus on the training and development of the employees. State two benefits of such
training for the employees and two benefits for the organisation as a whole.
Answer
Benefits of training for the employees:
i. Adds to skill and knowledge: Training improves the skill and knowledge of the employees and
prepares them to face new challenges. This in turn improves their career prospects.
ii. Less accident prone: Proper training makes the employees better equipped with the
machinery. In other words, with training they are able to handle the machines more efficiently.
This makes them less prone to accidents.
Benefits of training to the organisation
i. Improves productivity and efficiency: Training enhances the productivity and efficiency of
the employees. A trained employee always performs better than the employee without any
training. Through training, the employees get an insight into the actual work requirements before
they are actually assigned the work. This considerably improves their efficiency and
productivity.
ii. Adapting to changes: Through proper training of the employees, the organisation is better
able to adapt to such changes as technological changes and economic changes.
Q. 49 A company was manufacturing 'LED bulbs' which were in great demand. It was found that
the target of producing 300 bulbs a day was not met by the employees. On analysis, it was found
that the workers were not at fault. Due to electricity failure and shortage of workers, the
company was not able to achieve the set targets and alternative arrangements were needed.
To meet the increased demand, the company assessed that approximately 88 additional workers
were required out of which 8 would work as heads of different departments and 10 would work
as subordinates under each head. The required qualifications and job specifications were also
enlisted. It was also decided that necessary relaxation should be given to encourage women,
persons from backward and rural areas and persons with special abilities to assume responsible
positions in the organisation. All efforts were made to match the ability of the applicants with the
nature of work.
(a) Identify the functions of management discussed above.
(b) State the two steps in the process of each function discussed in the above para.
Answer
(a) Organising and Staffing functions of management are discussed above.
(b) Steps in Organising Function
The following are the steps involved in a successful process of organising:
i) Identifying and Dividing the Work: Under organising, the very first step deals with
identifying the activities and dividing them according to the defined plans. The actions are
divided as per the objectives. A clear division of work is done so as to avoid any duplicity.
ii) Creating Departments: Herein, the divided actions are further grouped into units based on
the similarity in nature. In other words, similar activities are grouped together. Such
departmentalisation promotes specialisation. Each department specialises in a particular task.
Departments can be formed on the basis of several criteria such as working profiles, regions,
product, etc.
Steps in Staffing function
Following is a brief description of steps involved in staffing:
i) Estimation of the Required Manpower: The process of estimating manpower requirement is
the basic step in the process of staffing. It refers to knowing the number and the kind of
persons that are required in the organisation. Estimation process involves two steps, workload
analysis and workforce analysis. Work load analysis implies an estimation of the number and
the kind of persons required for various jobs. Workforce analysis implies an estimation of the
existing persons. The two step analysis reveals whether there is any overstaffing or
understaffing in the organisation and thereby, forms the basis of the staffing process. For
example, a situation of understaffing would imply that more personnel are required to be
appointed and a situation of overstaffing would imply that some of the existing personnel
need to be removed.
ii) Recruitment/Searching: It refers to enlisting and searching the suitable candidates for a job.
It is the process of searching appropriate people and influencing them to apply in the
organisation for a job. Recruitment creates a pool of prospective candidates. It involves
searching through various sources that includes internal sources (transfers and promotions)
and external sources (advertising and placement agencies). It forms the basis for the selection
process by attracting the aspirants towards the organisation.
Q. 50 „Staffing is an important function of management in all organisations‟. Why? Explain any
four reasons.
Answer
In today‟s business environment, with rapid changes taking place in technology, size of the
organisations, etc., finding the right people for jobs has become critical for the success of any
organisation. In such a scenario, a proper staffing process plays an important role in
organisations. Staffing takes care of the manpower requirements of an organisation and ensures
that the right personnel are placed in the right positions.
The following points highlight the importance of staffing:
i. Helps find competent personnel: The staffing process helps in finding and choosing the right
personnel required for jobs.
ii. Improves efficiency: Proper staffing ensures that the right people are placed in the right jobs.
Thus, it helps in improving the overall level of efficiency and performance in an organisation.
iii. Ensures organisational growth: A rigorous staffing process ensures that only the most
suitable and competent personnel are selected for various positions in an organisation. Thus, it
promotes the overall growth and development of the organisation.
iv. Facilitates the optimum utilisation of human resources: Through proper manpower
planning, staffing prevents situations of over-utilisation or under-utilisation of manpower. In
addition, it avoids interruption in work by pointing out in advance any shortage of manpower or
any unfilled vacancy.
v. Provides job satisfaction to employees: Compensation and fair rewards given to the
employees provide them self-confidence and job satisfaction. These incentives encourage them
to work diligently and give their best to the organisation.
Q. 51 Mr. Shubhendu Bose is the owner of 'Bikmac Enterprises' carrying on the business of
manufacturing various kinds of biscuits. There was a lot of discontentment in the organisation
and the targets were not being met. He asked his son, Naval, who had recently completed his
MBA, to find out the reason. Naval found that all decision making of the enterprise were in the
hands of his father. His father didn't believe in his employees. As a result both the employer and
the employees were not able to understand each others message in the same sense. Thus, the
employees were not happy and targets were not met.
(a) Identify any two communication barriers because of which Bikmac Enterprises was not able
to achieve its target.
(b) State one more barrier each of the types identified in (a) above.
Answer
(a) The two communication barriers because of which Bikmac Enterprises was not able to
achieve its target are:
(i) Organisational Barriers : The type of organisational barrier because of which Bikmac
Enterprises was not able to achieve its targets is 'Policy of the organisation'. If the
organisation‟s policy (such as following a centralised organisational structure) does not support
free flow of communication, then it hampers the flow of communication. For instance, in a
centralised organisational structure, free flow of communication is restricted.
(ii) Personal Barriers : The type of personal barrier because of which Bikmac Enterprises was
not able to achieve its targets is 'Low confidence on subordinates by the superior'. When the
superior does not have confidence on the subordinates, he is unwilling to involve them in
discussions and other matters. This leads to a communication gap between the two.
(b) Types of Organisational Barrier
Rules and regulations: Rigid rules and regulations hamper effective communication. Such rules
as following strict channels of communication (through scalar chain) make the communication
process cumbersome and lead to delays in the flow of information.
Types of Personal Barrier
Fear: At times, due to difference in status and authority, the subordinates fear their superior and
often hesitate to communicate freely with them. In such cases, the communication is suppressed.
Q. 52 'Alfa Ltd.' was dealing in renewable energy. To get the business, the team leader and his
team used to travel to different states to give presentation to their clients. As per the policy of the
company, the leader used to travel by air, whereas his team travelled by road/train. It was not
only time consuming but also at time forced female team members to travel alone.
As a result, the subordinates were not acting in a desired manner to achieve organisational goals.
The CEO came to know about it. He called the team leader, discussed the matter with him and
decided to change the travel policy of the company. It was decided that all the members
including the leader would travel together in future and would usefully utilise the travelling time
in discussion with the subordinates about presentation to be given to the clients. This made a
positive impact and every member of the team started acting in a manner as desired by the team
leader.
State the features of the element of the function of management used by the CEO.
Answer
The element of function of management used by the CEO is „Motivation‟. This is because as per
the travel policy of the company subordinates were not acting in a desired manner to achieve
organisational goals. An employee does not act in a desired manner when he feels demotivated.
But a change in travel policy had a positive impact on employees and they start acting in a
manner desired by the leader which is possible only with the help of motivation.
The following points highlight the features of motivation.
1. Is an inherent feeling: Motivation is a feeling that is inherent to an employee. For instance,
needs, desires, wants and ambitions are internal to individuals and directly influence their
behaviour to work in a certain manner.
2. Leads to goal-oriented behaviour: Motivation influences the behaviour of the employees and
induces them to work efficiently towards the achievement of the goals of the organisation.
3. Can be both positive and negative: Positive motivations can take the form of rewards,
incentives or promotions. On the other hand, negative motivation can be in the form of warning
or demotion. The kind of motivations to be followed depends on the needs and attitudes of the
employee.
4. Is a complicated process: Human behaviour is complex. An organisation comprises numerous
individuals who have different desires, expectations and attitudes. This implies that motivation
also varies from one individual to another, making the process highly complicated.
Q. 53 Smita had been working as an assistant manager with 'Johnson Enterprises' for the last ten
years. She was very popular amongst her colleagues because of her commitment and dedication
towards the work. When the manager senior to her retired, all her colleagues thought that now
Smita would be promoted. But to everyone's surprise the vacant post was filled by an outsider,
Mrs. Rita. Smita felt demoralised and her performance started declining. She would abstain
herself often and could not meet her targets.
Mrs. Rita was a good leader, who would not only instruct her subordinates but would also guide
and inspire them. She noticed Smita's behaviour and felt that her performance could be
improved. She started involving Smita in decision making-issues related to the organisation and
made her a part of high level joint-management committee. Smita was now punctual in office
and her performance started improving.
(i) Identify the function of management being performed by Rita.
(ii) Name the element of the above function of management which helped Rita to improve
Smita's behaviour
(iii) State any three features of the element identified in (ii) above.
Answer
(i) Directing function of management is performed by Rita.
(ii) Motivation helped Rita to improve Smita's behaviour.
(iii) The features of motivation are as follows:
a) Is an Inherent Feeling: Motivation is a feeling that is inherent to an employee. For
instance, needs, desires, wants and ambitions are internal to individuals and directly
influence their behaviour towards work in a certain manner.
b) Leads to Goal-Oriented Behaviour: Motivation influences the behaviour of the
employees and induces them to work efficiently towards the achievement of the goals of
the organisation.
c) Can be Both Positive and Negative: Positive motivations can take the form of rewards,
incentives or promotions. On the other hand, negative motivations can be in the form of
warnings or demotions. The kind of motivation to be followed depends on the needs and
attitudes of the employee.
Q. 54 “Directing is the key function of management that must take place throughout the existing
life of an organisation.” Do you agree? Give reasons.
Answer
Yes, directing does play an important role in the overall process of management. It needs to be
performed throughout the entire life of an organisation. Any action towards achieving the
organisational goals cannot take place without proper directing. Through the function of
directing, the managers not only guide the workers on what is to be done and how it is to be
done, but also keep a check on whether their instructions are being correctly implemented or not.
This ensures that employees are constantly guided towards the organisational objectives. While
managers or the technology may change in due course of time, directing must continue
throughout the life of an organisation. The following points highlight the significance of
directing in an organisation:
i. Initiates action: Directing is a function that sets the ball rolling. It initiates the action of any
task that is to be performed. It stimulates people to perform the actions in order to attain the
organisational objectives. For instance, if a subordinate has a problem with some work, his
superior would direct and guide him towards the solution and thereby help him to attain the work
targets.
ii. Integration of efforts: Directing unites the individual efforts of employees and channelises
them towards the common goals of the organisation. In this way, it helps in avoiding any
conflicts or misunderstandings and ensures that the individuals work together to attain the
prescribed targets.
iii. Employee development: By guiding the employees and providing them effective motivation
and leadership, directing promotes employee development. It helps the individuals to realise their
potential and encourages them to give their best.
iv. Facilitates changes: Directing helps an organisation to adapt to the various changes that
occur in the working environment. Usually, people working in an organisation resist to such
changes−−whether in policies or technology. Effective directing in the form of proper motivation
and guidance helps in reducing these resistances.
v. Stability: By promoting the individuals to work in cooperation, effective directing provides
long- term stability to an organisation. It fosters the feeling of mutual understanding and
commitment within the working people and motivates them to achieve the organisational goals.
Thus, it helps in creating a balance between the organisational activities.
Q. 55 Kallu worked as the manager of NIFE Ltd. The senior management asked Kallu to submit
a performance report for his department by 15th
of March. Kallu decided to delegate this work to
Lallu. However, due to certain personal reasons, Lallu wanted to submit the report after 15th
of
March. As a result, they got into a conflict which further led to reduction in the working
efficiency and they could not submit the report on time. Which principle of directing is being
violated in the given situation?
Answer
The principle that is violated is „Harmony of Objectives‟. According to this principle, individual
objectives and organisational objectives should not be in conflict with each other. Rather, there
should be harmony of objectives such that organisational efficiency is improved. In other words,
the individuals should take the organisational objectives in their own interest. In the given case,
the personal interest of Lallu diverged from that of the organisational objectives. He gave greater
priority to his own personal interest over the organisational interest. This led to reduction in the
overall work efficiency and delay in work.
Q. 56 In TEKNO Ltd., there was a high rate of employee turnover that resulted in high cost to
the company in terms of recruiting and training the new people. How do you think motivation
can play a significant role in improving the given situation?
Answer
In the given situation of TEKNO Ltd., motivation can play a very significant role in improving
the situation. If various needs of the employees are satisfied and fulfilled with proper
motivational techniques, then employees tend to continue in the organisation longer. Motivation
in the form of timely incentives, pay-ups, recognition, etc., can encourage employees to work
more efficiently and perform their best. It satisfies their motivational needs and thereby compels
employees to stay in the company. In other words, motivation helps to retain employees in the
organisation. Thus, it reduces the employee turnover and saves the recruitment and training costs
to the company.
Q. 57 Aneesh act as a link between the workers and the managers. What role is he playing?
State any two of the functions that he would perform.
Answer
The role played by Aneesh is that of a „Supervisor‟. In the organisational hierarchy, he lies
immediately above the workers and directly oversees their activities.
The following are the two functions that he would perform:
i. Maintains harmony and unity: As he is in direct contact with the workers, he guides and
supports them. This helps in maintaining harmony and unity among the workers by clearing their
internal conflicts.
ii. Acts as a link between the workers and the managers: He acts as a link between the
managers and the workers. Through the supervisor, on the one hand, the management
communicates its ideas and policies to the workers, and on the other hand, the workers
communicate their grievances and problems to the management. The importance of a supervisor
lies in the fact that he helps in sorting out the differences between the workers and the
management. He also creates a cordial working environment such that organisational goals are
achieved efficiently.
Q. 58 ABC Ltd. did not have any such facilities as complaint box or suggestion box. Due to this,
the employees were not able to give the required suggestions or feedbacks to the managers. This
created a communication gap between them. Which communication barrier is being referred to?
Explain briefly.
Answer
The type of communication barrier that is being referred in the given situation is „Organisational
Barriers‟. Often, it is found that in organisations the formal structure creates hindrances in
effective communication. Factors such as authority, rules, regulations and relationships obstruct
the free flow of communication. For instance, a highly centralised policy, complex
organisational structures, rigid rules and channels of communication or lack of organisational
facilities may act as a hurdle to effective communication.
In the given situation, the organisation lacks the facilities of complaint box and suggestion box.
Lack of such facilities discourages free flow of communication. The employees may not be able
to effectively communicate their ideas and suggestions to the management.
Q. 59 Neeraj, a sales representative of 'Omida Ltd.' has changed seven jobs in the last one year.
He is a hard working person but is not table to finalise deals with the customers due to his
inadequate vocabulary and omission of needed words. Sometimes he uses wrong words because
of which intended meaning is not conveyed. All this created a mis-understanding between him
and his clients.
(a) Identify the communication barrier discussed above.
(b) State the category of this communication barrier.
(c) Explain any other communication barrier of the same category.
Answer
a) The communication barrier that is being discussed in the given situation is 'badly expressed
message'.
b) The category of communication barrier that is being discussed in the given situation
is 'semantic barriers'. Semantic barriers of communication relate to the use or understanding
of language. Sometimes, certain words, sentences or phrases are misinterpreted or
misunderstood and in such cases, effective communication is obstructed.
c) One of the semantic communication barrier is 'faulty translations'. In certain cases, the
proficiency in a language differs among the workers and the managers. In such cases, a
translation of the information is required in the language that is understandable to the workers.
However, in the process of translation, some of the words or sentences may get
misinterpreted. For example, in the translation of an instruction from English to Hindi, the
meaning of certain words might change.
Q. 60 What is meant by communication? Explain briefly the elements involved in the
communication process.
Answer
Communication refers to the process of exchanging ideas, facts, views, feelings, etc., among
people. In other words, it refers to the transfer of information from one person to another. The
process of communication involves various elements as discussed below:
i. Sender- The sender is the person who initiates the process of communication and sends his
thoughts or views to the receiver.
ii. Message- It refers to the content or the matter that contains the ideas or suggestions that need
to be communicated.
iii. Encoding- The process of converting the intended message into symbols that are generally
used for communicating is referred to as encoding. It involves developing words, gestures or
pictures that form the message.
iv. Media- The path/ channel/ medium that is used for transmitting the encoded message is
referred to as media. There are various channels that can be used for transferring a message such
as face to face, telephone conversation or the Internet.
v. Decoding- Once the message is duly transmitted, the message is decoded. Decoding refers to
the process of converting the encoded symbols that are used in the message.
vi. Receiver- Receiver is the person who is at the receiving end of the communication and
receives the message that is intended for him.
vii. Feedback- The actions performed by the receiver to deliver the fact that he/she has received
and understood the message of the sender is known as feedback.
viii. Noise- Noise refers to the obstruction or hindrance in the communication process. It can be
caused at any level of communication. This means, the obstruction can occur on the part of the
sender, receiver or in the message itself. Noise can be in the form of a poor telephone
connection, inattentive receiver or ambiguous symbols.
Q. 61 Maslow‟s need hierarchy is considered fundamental to understanding of motivation.
Explain the role of need-hierarchy in motivation.
Answer
Maslow‟s need hierarchy theory provides an understanding of the complex phenomenon of
motivation. According to Maslow, within each individual there exists a set of five needs that can
be arranged in a hierarchy. Knowledge of these needs helps the manager to understand the
behaviour of the employees. With identification of the needs of the employees, appropriate
motivation can be provided to them.
Assumptions:
Maslow‟s theory is based on the following assumptions:
i. People‟s need influences their behaviour.
ii. The needs of an individual can be arranged in a hierarchical order.
iii. An individual can move to a higher level need only when the lower level need in the
hierarchy is satisfied.
iv. Once a need is satisfied, an individual can be motivated only through the next higher level
need.
Theory:
The following is the hierarchy of needs as given by Maslow:
i. Physiological needs: Physiological needs are the very basic needs and pertain to the
requirements for the sustenance of life. In other words, the fulfilment of these needs is necessary
for the survival of an individual. For example, food, clothing, shelter are physiological needs.
For the satisfaction of such needs, an employee would require a certain basic salary and would
be motivated to earn it.
ii. Security needs: Security needs relate to the physical and economic security and overall well-
being of an individual. For example, every employee desires job security and income stability.
iii. Belongingness needs: Belongingness needs comprise the social needs of an individual, such
as affection, acceptance, companionship, etc. Every individual yearns for social acceptance and
belongingness and thus strives for it.
iv. Esteem needs: Esteem needs include respect, dignity and recognition. Every individual wants
to command respect and acknowledgement in his or her peer group.
v. Self-actualisation needs: Self-satisfaction needs refer to achieving what one aspires for and is
assigned the highest level in Maslow‟s hierarchy. For an employee, such needs relate to growth,
work satisfaction, etc.
Q. 62 „The barriers to effective communication exist in all organisations to a greater or lesser
degree.‟ State any six measures to overcome these barriers.
Answer
The following are measures that can be adopted to overcome various barriers of communication:
(i) Communication should take place as per the level of understanding and capabilities of the
receiver. The receiver should be able to clearly understand the information communicated.
(ii) The language, tone and content of the information communicated should be appropriately
chosen. It should be easily understandable and should not harm anybody‟s sentiments.
(iii) In order to make communication effective, regular feedback regarding the information
communicated must be taken from the receiver. During the communication process, the
communicator must encourage the receiver to respond and ask questions in case of any doubt.
(iv) The communicator should also be a patient listener. He or she should be open to receiving
communication from the receiver.
(v) The information communicated should be complete in all respects; nothing should be left
ambiguous.
(vi) The core idea of the communication must be clear to both the sender and the receiver. Before
starting a communication process, both the parties involved should have a general idea of the
communication.
Q. 63 „Controlling, being a systematic process involves evaluating and assessing the progress of
the work done against the set standards.‟ Explain how controlling is a „systematic process‟.
Answer
Controlling is a systematic process in the sense that it involves various steps that are necessary
for managing the overall organisational actions. Controlling refers to the function of evaluating
and assessing the progress of performance. It primarily involves setting a specific criteria or
standard for performance and then comparing the actual performance with the set standards.
Then, deviations from the set targets are analysed and the required corrective actions are taken
accordingly. Thus, controlling is said to be a systematic process of managing the overall
organisational actions. The following are the steps involved in the controlling process:
i) Setting standards: The first step in the process of controlling is to develop the standards or
benchmarks for performance as against which the actual performance would be measured. The
standards can be set in both qualitative and quantitative terms. Qualitative benchmarks can be in
the form of improving coordination in work, higher goodwill or increased motivation level of
employees. On the other hand, quantitative benchmarks can be in the form of sales targets,
production units to be produced or time to be spent on a particular action, etc. The standards that
are set should be such that they facilitate easy comparison.
ii) Measuring actual performance: Once the performance standards are set, the next step is to
measure the actual performance. This may be done through various techniques such as personal
observation and performance reports. The evaluation should be done in an objective and reliable
manner so that correct measurement is taken for the comparison purpose. Performance can be
evaluated after the completion of an activity as well as while it is in progress.
iii) Comparing the performances: Performances once measured are then compared with the set
standards. Such a comparison helps in assessing the deviations in performance. In regard to this,
comparisons in quantitative terms are much easier than in qualitative terms.
iv) Analysing deviations: Every organisation faces deviations in the actual performance as
against the pre-defined standards. It is important for managers to find the deviations that are
beyond the permissible range. Furthermore, deviations in key areas of business need to be
analysed on a priority basis as compared to deviations in certain insignificant areas. For
analysing the deviations, managers generally use two techniques, namely „Critical Point Control‟
and „Management by Exception‟.
• Critical Point Control: According to this technique, the management must control only those
activities that are critical to the organisation‟s success. Such critical points are known as the key
result areas (KRAs). Any deviation or deficiency in these key areas affects the entire
organisation. Thus, deviations in these key areas should be appropriately
controlled. Management by Exception: This technique of management is based on the belief that
„an attempt to control everything results in controlling nothing.‟ According to this technique,
only the essential and significant deviations that are beyond the acceptable limit should be
acknowledged by the managers.
Once the deviations are recognised, it is necessary to identify the cause for it. There can be a
number of factors causing deviations in performance such as infeasible standards, deficiencies in
process, under-utilisation of resources and changes in business environment. Thus, it becomes
important for managers to identify the causes for the concerned deviations.
v) Corrective measures: When deviations go beyond the admissible limits, there arises a need
for the manager to take corrective actions. This is the final step in the controlling process which
aims at correcting the deficiencies of the organisation so that such deviations do not occur again.
Hence, we can say that controlling is a „systematic process‟ that involves a series of steps.
Q. 64 Danny, the production manager of DUGH Ltd., found that the production target is not
being met on time. Thus, he took suggestions from his workers to improve the working
efficiency. One of them suggested that new machinery should be assigned to them as the current
equipments are outdated and inefficient. Keeping the suggestion in view, Danny brought new
machinery and equipments for his workers. As a result of this, the working efficiency was
doubled and the production target was met on time. Which step of controlling is being performed
in the situation? Explain.
Answer
The step of controlling that is being performed in the situation is „Taking corrective measures‟.
When deviations in the work go beyond the admissible limits, there arises a need for the
management to take corrective actions. Various deficiencies must be appropriately corrected so
that they do not occur again and the set standards are maintained. In the given case, when the
production target was not met duly, a corrective action in the form of updating the working
machinery was taken.
Q. 65 In YR Ltd., it was observed that the production manager was unable to effectively
formulate the plans for the next financial year. When he was questioned regarding this, he
blamed the top managers for inconsistent controlling. Do you think the explanation given by the
production manager is justified? Give suitable reasons to support your answer. Also, bring out
the significance of effective controlling in an organisation.
Answer
Yes, in the given situation, the explanation given by the production manager is justified to a
certain extent. This is due to the fact that without appropriate controlling, planning cannot be
performed effectively. Planning and controlling are closely interrelated functions of
management. On the one hand, under planning, the mangers think and decide about what is to be
done and how it is to be done; while on the other hand, under controlling, the work is managed
and evaluated in accordance with the set standards and the required corrective measures are
taken. Effective controlling is a pre-requisite for planning. It helps in setting the basis for further
planning in the sense that new plans are made in reference to the problems that were identified
earlier during controlling. New policies and rules that are designed to achieve the organisational
goals are made in the light of the corrective actions that were taken in order to rectify the
deviations under controlling. Therefore, we can say that in case of inconsistent controlling, future
planning cannot be made efficient. Hence, the reason given by the production manager in the
given situation is justified.
The following points highlight the significance of effective controlling:
i) Accomplishing organisational goals: Controlling closely monitors the work in progress and
identifies the deficiencies or deviations, if any. It also takes the required corrective actions. Thus,
controlling helps in moving in the right direction towards the attainment of the organisational
goals.
ii) Evaluating the standards: A good controlling system enables the manager to assess the
accuracy and feasibility of the set standards. It also helps the organisation to review and revise
the standards according to the changing business environment.
iii) Optimum utilisation of resources: A continuous controlling and monitoring system helps in
efficient and optimum utilisation of resources. Controlling ensures that each task is performed
strictly according to the set standards. In this way, it makes sure that there is minimum wastage
of resources.
iv) Employee motivation: Through a good controlling system, employees get to know well in
advance about what is expected from them and the standards against which their performance
will be assessed. This motivates them to achieve the assigned targets in a better way.
v) Order and discipline: Efficient controlling helps in creating an atmosphere of order and
discipline in the organisation. As the employees are aware of the fact that they are being
continuously observed, the dishonesty and inefficiency in behaviour is minimised.
vi) Promoting coordination: Pre-determined standards provide a basis for better coordination
within various activities. As the departments are made aware of their duties and tasks, controlling
promotes coordination among them. It also promotes unity of direction while ensuring that the
organisational objectives are met.
Q. 66 „Controlling is the last function of management.‟ Do you agree? Support your answer with
appropriate reasons.
Answer
No, controlling is not the last function of management. Rather, it forms the basis for future
planning and starts a fresh management cycle. Controlling refers to the process of managing and
evaluating the performance in accordance with the set standards. It helps in determining whether
there are any deviations from the standards. It also aims at taking the required corrective actions
for deficiencies, if any. The completion of the controlling process sets the basis for further
planning in the sense that new plans are made in reference to the problems that were identified
earlier during controlling. Moreover, further policies and rules are defined in the light of the
corrective actions that were taken in order to rectify the deviations. Thus, we can say that
controlling does not end the functions of management. It only reflects the completion of a cycle
of management and sets the base for a fresh cycle.
Q. 67 'There is a close and reciprocal relationship between planning and controlling'. Explain the
statement.
Answer
There is a close and reciprocal relationship between planning and controlling. The following
points highlight the relationship between controlling and planning:
1. By providing the organisation with the working standards against which the actual
performance is measured, planning helps in making the process of controlling a much easier and
effective task.
2. As controlling provides information based on the evaluation of past performances and takes
corrective actions in case of deviations, it helps in future planning.
3. Controlling without planning is meaningless. This is because, if there would be no standards
or objectives, there would be nothing left to control.
4. Without controlling, planning cannot be accomplished as controlling is a requisite for
measuring whether the plan is being properly implemented or not.
Q. 68 „Planning and Controlling are inseparable twins of management.‟ How?
Solution
Planning and controlling are two closely interrelated functions of management. On the one hand,
planning is the psychological process of thinking about and deciding what is to be done and how
it is to be done. In other words, planning aims at how the objectives are to be achieved and what
course of action is to be followed. On the other hand, controlling is a process of managing and
evaluating the work done. Controlling is important as it helps is assessing whether the work done
till that particular time is as per the plans and the standards. In case of any deviations from the
planned targets, then controlling prompts corrective measures on time. The planned targets and
the standards (which form the basis of controlling) are provided by planning. Thus, controlling
without planning is meaningless. If there are no standards and no objectives, then there is
nothing to control. That is, if managers do not have any final objective (in case there is no
planning), then they do not have any fixed standards against which they can judge current
performance and deviations if any.
Similarly, planning without controlling holds no meaning. Once the plans are formulated, it
becomes necessary to monitor and evaluate whether the performance and the work done are as
per the plans. Controlling is the only technique through which the adherence to the plans can be
measured and any deviations from the planned targets identified. If there exists any deviation,
then controlling prompts timely corrective measures, which ensures the achievement of the
planned objectives. If there is no controlling, planning cannot be accomplished. Thereby,
planning without controlling is of no use—they complement each other and are the inseparable
twins of management.
Q. 69 Explain any four points highlight the importance of controlling.
Answer
The following points highlight the importance of effective controlling:
i. Achieving organisational goals: Controlling aims at accomplishment of organisational goals
by indicating the deficiencies and the corrective actions which are to be taken in case of
deviations. It helps an organisation in moving in the right direction, thereby helping it to attain its
goals.
ii. Evaluating the standards: Controlling helps in judging the accuracy of the standards adopted
by the management. Thus, a good controlling system enables the manager to check whether the
set standards are accurate and feasible according to the working conditions of the organisation. It
also helps the organisation to review and revise the standards according to the changing business
environment.
iii. Maintaining order and discipline: Efficient controlling helps create an atmosphere of order
and discipline in an organisation. If employees are aware of the fact that they are being
continuously observed, then dishonest and inefficient behaviour would be minimised.
iv. Promoting coordination: Pre-determined standards provide a basis for improving
coordination within various activities. With controlling, departments are made aware of their
duties and tasks, thereby promoting coordination among them. Thus, controlling provides unity
of direction while ensuring that the organisational objectives are met.
Q. 70 „It enables an enterprise to tackle the uncertainties regarding availability of funds.‟ Identify
the process that is being discussed here. Also, state its importance in the smooth functioning of
an organisation.
Answer
The process that is being discussed here is „Financial Planning‟. It involves designing the
blueprint of of a company‟s financial operations. This ensures availability of the right amount of
funds at the right time, thereby confirming the smooth functioning of the company.
Importance of Financial Planning
The following points highlight the importance of financial planning in an organisation:
i. Enables forecasting- With the help of financial planning, the future financial needs and
finance availability can be forecasted. This helps the company to prepare beforehand for the
probable future bottlenecks. It also clearly defines as to what must be done in different situations.
Thus, in this way, financial planning enables smooth functioning of the business.
ii. Provides cushion against adversities- Through financial planning, managers attempt to peep
into the future. If any adverse situations such as economic fluctuations and shocks are intuited,
then plans are drafted in a way to insulate the business operations from the adverse situations.
iii. Promotes coordination- Financial planning promotes coordination between the activities and
operations of different departments of a company. In this way, it eradicates the chance of clashes
or coincidence of financial needs among the different departments. Hence, financial planning
provides a clear framework and therefore promotes cooperation and coordination.
iv. Avoids duplicacy- A proper financial planning clearly defines the financial needs, various
sources from which finance can be raised, procedures to raise finance, etc. All these provide a
check on the inefficiencies in terms of time and efforts, thereby helping in avoiding duplicacy.
v. Judicious use of available finance- This is the most important function of financial planning.
Not only does it aim at fuller utilisation of the available funds but also enables judicious and
cautious use of the funds. In this way, financial planning provides a check on the situations of
inadequate funds as well as surplus funds.
Q. 71 In order to fulfil the paramount objective of financial management, XYS Ltd. decided to
increase its earnings per share (EPS). To pursue this objective, the company deliberately
understated its liabilities and overstated its assets. This enabled the company to achieve its
objective of financial management besides attracting more investors.
Identify the objective of financial management that has been referred to in this scenario.
Answer
The paramount objective of financial management that is referred to here is “Maximising
Shareholders‟ Wealth”. This objective is also termed as wealth maximisation concept. According
to this concept, a company should opt for those financial decisions that are gainful from the point
of view of its shareholders. The shareholders gain when the market prices of their shares rise.
But the rise in the market price of shares will only happen when the benefits from a financial
decision exceeds the costs involved in adopting it. Thus, a company should only opt for those
financial decisions which tend to push the market price of its shares, thereby maximising the
wealth of its shareholders.
Q. 72 Arun, an entrepreneur wants to expand his existing firm. After thinking a lot and
evaluating various alternatives, he decided to expand his firm by opening up a new branch in
South Delhi. Identify and briefly explain the dimension of the financial decision taken by Arun
in this situation?
Answer
In the given scenario, opening up of a new branch involves allocation of huge funds and that too
for a long term. Furthermore, Arun has already evaluated all the alternatives and found that
opening up a new branch is the most fruitful option, as it can provide him with the maximum
returns on his investment. Thus, the dimension of financial decisions involved in the given
scenario is „Investment Decisions‟. These decisions are basically taken in regard with allocating
the funds to the alternative that fetches the highest possible returns on the investment. These
decisions are of two types depending on the time horizons. If investment decisions are taken for
projects having a shorter time period, then such decisions are termed as Working Capital
Decisions. These decisions affect the day-to-day working operations of a business. On the other
hand, if the investment decisions are taken for projects having a longer time period, then we
regard such decisions as Capital Budgeting Decisions. These types of decisions affect the long-
term earning capacity and profitability of a business.
Q. 73 Identify and state the impact of the following factors (any four), on the choice of capital
structure of a company.
i. Number of times earnings before interest and taxes of a company covers the interest obligation.
ii. Costs involved in raising the resources
iii. Total risk of a business
iv. Policies framed by law
v. Returns earned on capital investment
Answer
i. Interest Coverage Ratio- „Number of times earnings before interest and taxes of a company
covers the interest obligation‟
When this ratio is higher, there is a lesser degree of risk pertaining to the failure of interest
payment obligation. Thus, a higher proportion of debt may be used in the capital structure.
ii. Floatation Costs- „Costs involved in raising the resources‟
Costs involved in raising funds from various sources affect the choice of capital structure of a
company. Higher the costs related to public issue of shares or debentures, higher the use of debt
rather than equity.
iii. Financial and Operating Risk-„Total risk of a business‟
Total risk of a business depends on its financial risk as well as operating risk. Financial risk
refers to the inability of a business to meet its fixed interest payment obligations. Operating risk,
on the other hand, refers to the risk that depends upon fixed operating costs of a business. When
both these risks are high, the capacity of a company to use debt becomes low. In such cases, the
company should use higher equity.
iv. Regulatory Guidelines-„Policies framed by law‟
Every company needs to operate according to the guidelines framed by the law. There are many
sources wherein a company has to work according to pre-determined rules and regulations laid
by the bank or regulatory authorities. For instance, in case of issuing debentures, the company
needs to fulfil the requirements issued by SEBI. Thus, for such sources, the regulatory
framework can affect the choice of capital structure.
v. Returns on Investment (RoI)-„Returns earned on capital investment‟
When a company earns higher returns on invested capital, it can opt for trading on equity. In
such cases, its ability to use higher debt increases. Since RoI is an important determinant of
trading on equity, it affects the company‟s capital structure decision.
Q. 74 Mr. Right wanted to raise funds for his company. He was in a dilemma whether to opt
for higher equity or higher debt. He went to Mr. Wrong, a financial consultant, and asked for his
opinion. Mr. Wrong advised him to go for higher debt rather than equity, as the former is the
cheapest source to raise funds. However, Mr. Wrong did not inform him about the risk attached
with debt. What is the relation between debt and risk about which Mr. Right should know before
making his decision? Do you think what Mr. Wrong did was morally right?
Answer
It is important for Mr. Right to know the exact relation between debt and risk as this plays a vital
role while raising funds for the company. Although, debt is said to be the cheapest source of
raising funds (in terms of cost), it has a high financial risk attached to it. This is due to the fact
that the payment of interest and the return of principal are obligatory for a company. In other
words, it is compulsory for a company to pay the interest charges on debt along with the
principal amount as any default in payment of these may force the company to go into
liquidation. Such a situation is called financial risk. In other words, financial risk refers to the
situation where a company is not able to meet its fixed financial charges such as interest
payment, preference dividend and repayment obligations. It arises when the proportion of debt in
the capital structure increases. Thus, higher the debt, higher will be its payment obligations and
thereby higher will be the chances of default on payment. Therefore, higher use of debt leads to
higher financial risk for the company. In the given case, Mr. Wrong was morally wrong for he
did not provide the complete information regarding the use of debt.
Q. 75 'Viyo Ltd.' is a company manufacturing textiles. It has a share capital of Rs 60 lakhs. The
earning per share in the previous year was Rs 0.50. For diversification, the company requires
additional capital of Rs 40 lakhs. The company raised funds by issuing 10% debentures for the
same. During the current year the company earned profit of Rs 8 lakhs on capital employed. It
paid tax @ 40%.
(a) State whether the shareholders gained or lost, in respect of earning per share on
diversification. Show you calculations clearly.
(b) Also, state any three factors that favour the issue of debentures by the company as part of its
capital structure.
Answer
(a)
Note: The face value of equity shares is assumed to be Rs 10 each. Hence, number of equity
shares is 6,00,000.
(b) The three factors that favour the issue of debentures by the company as part of its capital
structure are given below.
1. Tax deductibility: Interest paid by the company to its debentures is tax deductible. In the
above scenario, the company is paying tax @ 40%. Thus, it is beneficial for the company to issue
debentures
2. Say in management: In the given scenario, the company already has a share capital of Rs
60,00,000. Issuing more shares will dilute the control of management. Thus, companies that are
apprehensive of the dilution of control opt for more of debt and less of equity.
3. Relatively low cost: For a company, cost of raising capital through debentures is relatively
lower than that through equity. This is due to assurance (of rate of returns)
and guaranteed repayment (of debenture amount at maturity) that debentureholders require
lower rate of returns. Besides this, interest amount payable to debentureholders is deductible
expense. This is to say that interest amount is deducted from the company's earnings and then the
net amount is used for calculation of tax liabilities. Hence, companies prefer to opt for
debentures, as higher use of debt, lowers the over-all cost of capital with cost of equity remaining
unaffected.
Q. 76 Explain any four factors affecting the working capital requirement of a company.
Answer
The working capital of a firm refers to the amount of current assets which are in excess over
current liabilities. The following are four factors which affect the working capital requirement of
a company:
i. Type of business: The working capital requirement of a firm depends on the nature of its
business and the level of its operating cycle. For instance, an organisation that provides services
or is involved with trading will not require much working capital, because it would have a small
operating cycle and does not undertake any processing. In such an organisation, no process exists
to convert the raw materials to finished goods, and the sales transaction can take place
immediately. In contrast, a manufacturing firm would have a large operating cycle, and it would
need to convert the raw materials into finished goods before the final sale transaction can take
place. Such a firm would require a large working capital.
ii. Scale of operations: Another factor determining the working capital requirement of a firm is
its scale of operations. If a firm operates on a large scale, then it needs to maintain a high stock
of inventory and maintain a large number of debtors. Therefore, its requirement of working
capital increases. In contrast, if the scale of operation is small, the requirement of the working
capital will be low.
iii. Fluctuations in business cycle: Different phases of a business cycle alter a firm‟s working
capital requirements. During a boom period, the market flourishes, and there is higher sale,
higher production, higher stock, and a higher number of debtors. Thus, during this period, the
need for working capital increases. As against this, in a period of depression, there is low
demand, low production and low sale, etc. Thus, the working capital requirement decreases.
iv. Production cycle: The production cycle of a company refers to the time taken for the
conversion of raw materials into finished goods. If a firm has a longer production cycle, i.e., if
there is a long time gap between the receipt of raw materials and their conversion into finished
goods, then there will be a high requirement of working capital because of the inventories and
related expenses. On the other hand, if the production cycle is short, then requirement of working
capital will be low.
Q. 77 „SEBI aims at providing safety of investment while regulating the activities of the stock
exchange.‟ Explain the two functions of SEBI that are being described in the given statement.
Answer
With regard to the statement given above, the following are the functions performed by SEBI:
i) Regulatory Functions
• Registration: One of the regulatory functions performed by SEBI is the registration of the
brokers, sub-brokers, agents and other players in the market. The registration of collective
mutual schemes and mutual funds are also performed by SEBI.
• Regulating the work: SEBI regulates the working of stock brokers, underwriters, merchant
bankers and other market intermediaries by framing rules and regulations for the working of the
intermediaries. The regulation of takeover bids is also performed by SEBI. Furthermore, the
SEBI conducts regular enquiries and audits of stock exchange and intermediaries.
• Regulation by Legislation: SEBI performs and exercises various other powers which are
delegated by the Government of India under the Securities Contracts (Regulation) Act, 1956.
Besides, it levies fees or other charges for carrying out the purposes of the Act.
ii) Protective Functions
• Prohibition
SEBI aims at prohibiting fraudulent and unfair trade practices. It prevents the spreading of
misleading and manipulative statements which are likely to affect the functioning of the
securities market. SEBI also educates the investors by providing them valuable information
regarding various securities and companies so as to enable them to make wise investment
decisions.
• Checks on Insider Trading: Insider trading refers to a situation where an individual connected
with the company leaks out crucial information regarding the company. Such information may
adversely affect its share prices. SEBI keeps a strict check on such insider trading.
• Promotion and Protection: SEBI encourages the practice of fair trading and promotes a code of
conduct for the intermediaries. It also keeps a check on the manipulation of price of securities
and undertakes the necessary steps for investor protection and education.
Q. 78 What do you understand by the „allocative function‟ performed by a financial market?
State its consequences as well.
Answer
A financial market acts as a link between the savers and the investors. By providing a defined
platform, it facilitates the transfer of savings from the households to the investors. It also
provides savers with various alternatives for investment and thereby directs the funds to their
most productive uses. In doing so, it performs what is known as the „allocative function‟. In
other words, a financial market performs the allocative function by allocating the funds
effectively and efficiently from the households to the investors. The following are the two
consequences of this function:
i. A higher rate of return is offered to the households.
ii. Scarce resources are allocated to the firms that have the highest productivity.
Q. 79 Identify and explain the money market instruments that are being referred to in the
following statements:
i. „They are bearer instruments for a period ranging from one month to more than five years.‟
ii. „It is a negotiable instrument and is mainly issued by large and creditworthy companies to
raise short-term funds.‟
Answer
i. The money market instrument that is being referred to is ‘Certificate of Deposit’ (CD).
Certificate of Deposits are time deposits which are negotiable and unsecured in nature. They are
bearer instruments for a short and specified time period ranging from one month to more than
five years. CDs are a secured form of investment, which are issued to individuals, corporations
and companies by the commercial banks and development financial institutions. Herein, higher
interests are offered for higher deposits. They are issued to meet the demand for credit during
times of tight liquidity. For example, when a person buys a CD by depositing a specific amount,
he receives a certificate wherein the term of deposit, the interest rate applicable and the date of
maturity are mentioned. On the date of maturity, the individual gets entitled to receive the
principle amount and the earned interest on it.
ii. The money market instrument that is being referred to is ‘Commercial Paper’ (CP).
Commercial paper is an unsecured short-term money market instrument. It is a negotiable and
transferable promissory note with a maturity period ranging from a minimum of 15 days to a
maximum of one year. CPs are mainly issued by large and creditworthy companies to raise short-
term funds. Large companies view commercial papers as an alternative to bank borrowings and
borrowings through capital market. The rate of interest payable on commercial papers is lower
than the market rates. Usually, companies use this instrument for bridge financing, i.e., to raise
the funds required to meet the floatation cost incurred on long-term borrowings in the capital
market. For example, if a company wishes to raise finance from the capital market to purchase
land. For this, it will have to incur floatation costs such as cost related to brokerage, commission,
advertising, etc. To finance such floatation costs, the company can issue Commercial Paper.
Q. 80 What do you mean by dematerialisation of securities. How does it overcome the problems
related to share certificate?
Answer
Dematerialisation of securities refers to an electronic book entry system that holds and transfers
the securities that are traded in the market. It is an uncomplicated way of keeping a record of the
securities that are being traded. Share certificate on the other hand, refers to the proof of
ownership of the securities that are owned by an individual. The system of share certificate
involves a number of drawbacks which are eliminated by the system of dematerialisation of
securities. For instance, the system of share certificate involves transactions in terms of money.
In other words, the securities holder has to obtain a share certificate in return for money.
However, it was observed that such a system leads to problems such as theft and forgery.
Moreover, this system also involves huge paperwork that results in delays in transfers. The
system of dematerialisation of securities introduced the electronic system, thereby eliminating
the need for paperwork or money transactions.
Q. 81 State any five functions of 'Stock Exchange'.
Answer
The following are the five main functions of a stock exchange:
i. Provides liquidity and marketability: The basic function performed by a stock exchange is to
provide a platform for trading in securities. It acts as a link between savers and investors in
which investors are provided with an option of disinvesting and reinvesting securities. This, in
turn, provides liquidity to financial assets and easy marketability of existing securities.
ii. Helps determine prices: A stock exchange helps in establishing the price of the monetary
assets that are traded in that exchange. This is done by maintaining a constant valuation of
securities and thereby building a demand for and supply of securities. The point where demand
and supply meets is said to determine the market price of securities.
iii. Provides a fair and safe market: A stock exchange, being a legal and well-regulated market,
trades within a defined and existing legal framework. This ensures safety in transactions along
with fair dealings in the market. This also encourages investors to make greater investments as
they are assured of safe transactions.
iv. Facilitates economic growth: By providing a platform for disinvestment and reinvestment of
securities, a stock exchange helps in providing various alternatives for channelling savings and
investments. This encourages investors to put their funds to the best use, thus leading to higher
degree of capital formation and economic growth.
v. Spreads equity cult: Through regulation of issues and better trading practices, a stock
exchange or a secondary market helps educate the public about investment. This includes taking
effective measures in order to promote wider ownership of securities. Thus, a stock exchange
encourages people to invest in ownership securities.
Q. 82 'Financial market plays an important role in the allocation of the scarce resources in an
economy by performing many important functions'. Explain any four such functions.
Answer
The following are the four functions of a financial market:
i. Mobilisation of savings and alternatives for investment
A financial market acts a link between the savers and the investors. It provides a platform for the
transfer of savings from the households to the investors. It also provides savers with various
alternatives for investment and thereby, directs the funds to the most productive investment.
ii. Establishes the price
Similar to the case of a commodity, the price of a financial asset is established through the forces
of demand and supply for funds. In this regard, financial markets provide a platform for the
interaction of the demand of the funds (represented by the business firms) and the supply of
funds (represented by the households). Thus, they help in determining the price of the asset being
traded.
iii. Facilitates liquidity
An asset or a security can be easily purchased and sold in a financial market. This renders
liquidity to the assets. In other words, through trading in the financial market, assets can easily
be converted into cash or cash equivalents.
iv. Reduced cost of transaction
By rendering information regarding the securities being traded, their price, availability, etc., a
financial market helps in reducing the cost of transaction. This cost is mainly in terms of effort,
money and time spent.
Q. 83 Identify the functions of marketing referred in the following given statements. Explain
each of them briefly.
i. „Deciding the name by which the product will be popular‟.
ii. „Moving goods from one place to another‟.
iii. „Providing technical or maintenance services‟.
iv. „Finding out what opportunities are best by identifying the desires of the consumers‟.
Answer
i. Branding- „Deciding the name by which the product will be popular‟.
Under this function of marketing, the producers decide the name of the product. In this regard,
they may opt for a generic name or a brand name. A brand is the distinguishing feature of a
product that helps the producers to identify and promote it.
ii. Transportation- „Moving goods from one place to another‟.
Transportation is an important function of marketing as it involves movement of goods from the
manufacturer‟s place to the place where they are to be consumed or used. It helps in increasing
the reach of the product to a large extent.
iii. Support Services- „Providing technical or maintenance services‟.
Providing support services is a very essential function of marketing as it involves handling
complaints and feedbacks of the customers. This is done by developing customer care services
such as credit services, maintenance or technical services.
iv. Analysing the Market- „Finding out what opportunities are best by identifying the desires of
the consumers‟.
Under this function, the marketers need to analyse the market in order to identify the best
opportunities. This is done by collecting information relating to the target market including its
size, behaviour, culture along with analysing the needs and wants of consumers.
Q. 84 Den Ltd. a company famous for producing bags, wanted to launch its new product in the
market. For promoting it on a wider scale, the Director decided to use promotion mix. However,
he was confused as to what tools he can use under promotion mix. Explain the concept of
promotion mix and the tools that he can opt for promoting the product.
Answer
As mentioned in the above question, promotion mix refers to techniques used for promoting a
product or service. In general, promotion mix refers to the combination of promotional tools that
a company can opt for informing customers about the product. It plays an important role in
persuading the potential customers to purchase the product. There are four main elements or
tools of promotion mix from which a company can choose the appropriate combination of tools
depending on its need. The following are the four elements or tools of promotion mix:
i. Advertising
Advertising is an impersonal and paid form of communication used by marketers where the
seller communicates with customers through various mediums such as television, newspapers
and radio. The basic objective of advertising is to create interest of the customers towards the
product. It is more suitable for situations where marketing is to be done on a large scale. This is
because advertising has a broader and wider reach to the public in a short period. Because of this,
it involves a very low cost per person. Thus, the company can opt for advertising to promote its
product on a large scale.
ii. Sales Promotion
Sales promotion refers to the incentives that are offered to buyers to encourage them to purchase
a product. It includes activities such as offering discounts, gifts and free samples. Such activities
increasingly attract customers and induce them to immediately purchase the product. Sales
promotion is especially useful at the time of a new product launch. They bring an initial boost to
sales. For example, discounts are given in the form of offering the product at a lower price than
the listed price. Similarly, free gifts are offered in the form of extra quantity. Such incentives are
offered by companies to attract more customers and boost sales.
iii. Personal Selling
It is a personal form of promoting and selling the product, wherein the seller directly
communicates with the potential buyers. That is, it involves face-to-face communication of the
sellers with the customers for the purpose of sale of the product. The basic objective of personal
selling is to create awareness about the product and induce decision making. It is more suitable
for situations when marketing is to be done for a few selected consumers. For example, if
marketing is directed towards intermediaries and retailers, personal selling is more beneficial.
Thus, a company may hire a salesman to perform personal selling for its product.
iv. Public Relations
Public relations refer to the various activities undertaken by an organisation to promote and
protect its image or products. It aims at strengthening the relations of the company with its
customers, shareholders, employees, suppliers, investors, etc. Public relations involve a wide
variety of tactics and tools that are used by a company to manage and promote its reputation
through news, speeches, seminars, etc. Furthermore, it may also use other tools such as press
releases, brochures and websites for promoting its product on a large scale.
Q. 85 ABC Ltd., a company famous for producing chocolates, decided to manufacture its
product on a very large scale. This was done in order to reduce its average costs. However, the
company did not adhere to the standard quality of the product. That is, while emphasising on
bulk production, the quality of the product was neglected. As a result, many people started facing
health related problems.
a) Identify and explain briefly the marketing philosophy that was adopted by ABC Ltd. in the
given situation.
Answer
a. The marketing philosophy adopted by the company is the „Production Concept‟. This concept
believes that the consumers generally favour those products which are readily available to them.
Therefore, firms must emphasise on improving the efficiency in production and distribution so
that a large volume of goods can be produced and be readily available to customers. As a result,
the company‟s profits will be maximised because increasing the volume of production reduces
the average cost of production. Thus, the Production Concept focuses on improving the
production efficiency of the business.
Q. 86 Jannat Ltd., was in the news recently. This was due to the fact that a customer, dissatisfied
with the product of the company, filed a case against it. Later, the court found that the case was
bogus and the company was let free of all the charges. However, all this left a negative
impression on the company‟s image. Therefore, the company decided to regain its image by
strengthening its relations with its customers and shareholders. Identify the promotional tool that
it should adopt? Also, what are the tactics and ways through which the company can achieve this
objective?
Answer
The promotional tool that should be adopted in this case is „Public Relations‟. It refers to the
activities undertaken by an organisation to promote and protect its image or its products. It aims
at strengthening the relations of the company with its customers, shareholders, employees,
investors and various other players that are a part of the company directly or indirectly. Under
this method, the company can use a wide variety of tactics to manage and promote its reputation.
The following are some of such tactics that Jannat Ltd., may use to regain its image while
strengthening the relations with its customers.
i. Press Release:
In this technique, the public relations officer of the company can announce an event or any item
that is newsworthy through a press release. This press release can be in the form of story lines,
messages, etc., that can be circulated through radio, television, internet or any other means of
communication. Thus, the company can clear the allegations or the harm done to its image.
ii. Brochures:
A brochure refers to a booklet published by the company, which provides information such as
background of the company, its ethics, objective and future projects. Through this technique, the
company can try and spread its authenticity and reputation around the concerned members and
persons.
iii. Conferences and Seminars:
The public relations officer of the company can conduct conferences and seminars to make
people aware about the company. Furthermore, through such conferences, the company will be
able to attract prospective clients and thereby regain its lost image.
iv. Websites:
A website acts as a fast and easy link between the company and the outside world. By browsing
through the website, members as well as the non-members can get useful information regarding
the company, thus helping the company regain its positive reputation.
v. Newsletters:
The company can publish newsletters at regular intervals. Newsletters are printed publications
written in a less formal style which contain detailed information regarding the achievements,
future prospects, past events and social responsibilities of the company. This helps in spreading
the information about the company and thereby promoting its image.
Q. 87 GUJ Ltd., a company producing clothes, used the three-level channel of distribution.
However, it decided to manufacture laptops as well. Will this decision affect the choice of
channel of distribution? If so, explain how?
Answer
Yes, it will affect the choice of channel of distribution. This is because the choice of channel of
distribution is based on the type of the product that is produced. In other words, the decision
regarding the appropriate channel of distribution is largely affected by the classification or the
category of product. Here, it is important to check whether the product is perishable or non-
perishable; whether it is an industrial or a consumer product or the degree of complexity of the
product. For instance, if a product is complex or sophisticated in nature then it would require
shorter channels of distribution and careful handling. Now, as given in the question, the company
is starting its business in the production of laptops which are very complex in nature. Thus, it
will surely affect the decision on the channel of distribution. Therefore, in the given scenario, the
company should opt for shorter channels rather than the long ones so as to avoid any technical
bottlenecks.
Q. 88 AJ Ltd., a company famous for producing potato chips, added „50% Air‟ to the list of
ingredients of its product. Identify and explain the function of labelling involved. Also state any
two other functions of labelling.
Answer
The function involved herein is „Description of Use and Contents‟. It is an important function of
labelling as it clearly specifies the contents of the products. In other words, a label performs the
function of stating content related specifications along with other useful information about the
product. This includes information related to its usage, ingredients, nutritional facts, reliefs or
benefits, etc. Moreover, it provides information regarding the cautions involved in the usage. The
following are two other functions of labelling:
i. Identification and Differentiation- Another function performed by a label is that it helps in
easy identification of the product. By creating a unique identity of the product, it helps the
consumers to differentiate their favourite products from the other available products.
ii. Product Promotion- By creating an identity of the product, a label helps in its promotion as
well. This can be done by making an attractive label so as to attract maximum customers towards
the product.
Q. 89 'Hayaram' is a famous chain selling a large variety of products in the Indian market. Their
products include chips, biscuits, sweets and squashes. It charges a comparatively higher price
than its competitors as it sells quality products. Besides, it offers regular discounts to its
customers and easy credit terms to its retailers. It has five of its own retail shops. It also sells its
products through various grocery stores so that the products are made available to customers at
the right place, in the right quantity and at the right time. It regularly uses different
communication tools to increase its sales.
The above para describes the combination of variables used by Hayaram to prepare its market
offering. Identify and explain the variables.
Answer
The variables that are discussed in the question are product, price, place and promotion.
1. Product: A product refers to any good or service that offers value and satisfies needs of a
customer. For example, a car, toothpaste, soap, services of teacher, etc. are products. In
marketing, a product relates not just to the physical product but it also includes the
satisfaction of various needs and utilities of the customer. For example, consumption of a
product benefits a consumer in the form of satisfaction of consumers‟ functional needs, social
needs and psychological needs. Such benefits also form a part of product. In addition a
product also includes the after sale services such as taking feedback, redressing consumer
complaints, etc. Regarding the product important decisions relate to designing, quality,
features, labelling, branding and packaging.
2. Price: Price refers to the money paid by the customers to obtain a product. Price of a product
affects its demand. As the price of a product increases, its demand falls and vice versa. The
marketers must analyse properly the various factors that determine the price and decide a
suitable price for the product. For example, the target customers, pricing policy followed by
the competitors, objectives of the firm, etc. must be consider while deciding a price. The price
set should be such that the customers find it at par with the value of the product. Suitable
discounts and incentive schemes must also be decided.
3. Place: Besides the product decisions and pricing decisions, a firm must also take decisions
regarding the availability of the product to the target customers. A firm must appropriately
decide the dealers or intermediaries for the distribution of the goods. Other important
decisions comprise of managing the inventory, warehousing, storage and transportation of the
goods.
4. Promotion: Promotion comprises of those activities that communicate customers regarding the
availability of a product, its features, qualities, etc. so as to influence the customers to
purchase the product. Organisations undertake various promotional activities such advertising,
sales techniques, personal selling, etc. An organisation must carefully decide the medium of
promotion and carefully take the related functions. For example, the organisation must decide
which of the sales techniques such as discounts, free gifts, sale, etc. should be used.
Q. 90 Explain the following functions of marketing:
(i) Gathering and analysing market information
(ii) Marketing planning
(iii) Customer support services and
(iv) Physical distribution.
Answer
i. Gathering and analysing market information: Marketers gather important market information
so as to appropriately identify the needs of the customers. This helps the firm to identify and
analyse the various business opportunities and threats.
ii. Market planning: Market planning is the basic function of marketing. Marketers plan the
various steps required to achieve the goals and objectives of marketing. In order to do so, they
conduct a market research to analyse the needs and preferences of the customers. Market
research helps marketers to develop a suitable plan, covering decisions related to the production
of a product and its promotion, to increase the number of customers.
iii. Customer support services: Support services involve handling complaints and feedback of
the customers. Organisations develop customer care services such as credit services,
maintenance services and technical services. These services are provided with the sole aim of
increasing customer satisfaction. Good quality support services help develop brand loyalty
among customers and ensure repeat sales.
iv. Physical distribution: This element of the marketing mix basically deals in the movement of
finished goods and services from producers to consumers, through middlemen and
intermediaries. During this phase, the firms undertake different distribution channels such as zero
level, first level, etc., depending on the type and nature of the goods produced. The choice of
appropriate distribution channel holds prime importance, as opting for an inappropriate
distribution channel may either unnecessarily raise the price of the good or deteriorate the quality
of the product.
Q. 91 'Though advertising is one of the most frequently used medium of promotion of goods and
services, it attracts lot of objections.' Explain any four such objections.
Answer
Though advertising is one of the most frequently used medium for promotion of goods and
services, it attracts a lot of objections.
Some objections to advertising are:
i. Increases cost: It is believed that advertisement expenses add to the cost of the company,
which is passed on to the consumers in the form of higher prices. However, supporters of
advertisement argue that it brings down the per unit cost of production. This is because
advertisement attracts a greater number of customers towards the product, leading to an increase
in the demand for the product. In response to the increased demand, the manufacturers increase
production. With the increased production, the per unit cost of production comes down. Thus, it
can be said that though advertisement expenses add to the cost, the increased cost can be
compensated through a fall in the per unit cost, resulting from the increased demand and
production.
ii. Weakens social values: One of the major criticisms of advertising is that it weakens social
values and promotes materialism in the society. Advertisement attracts customers towards new
products and induces them to purchase it. With the increased awareness about the availability of
new products, the customers feel dissatisfied about what they currently have. In the process, they
often end up buying what they don‟t even require. However, this series of discontentment and
purchase of new products is a never ending cycle which also increases materialism.
On the other hand, it is argued that advertisements just inform the buyers about the availability of
various products and the final decision to purchase the product rests with the consumer.
Advertisement increases the knowledge of the customers and keeps them informed.
iii. Creates confusion: It is argued that a large number of advertisements on similar products
confuse the customers. For example, advertisements of different hair oil companies claim to
provide healthy and long hair by the use of their product. Because of numerous advertisements, a
consumer gets confused as to which product and of which brand he should purchase.
On the contrary, supporters of advertisement do not agree with this criticism. They argue that
advertisement provide a choice to the consumers. The consumers can make a rational choice for
themselves after analysing various factors such as price, style, quality, etc.
iv. Promotes inferior goods: It is argued that products of both superior quality as well as inferior
quality are advertised. Through advertisement, demand for inferior goods can also be induced.
However, such a claim is only partially true. This is because quality is a relative concept. What is
inferior to one consumer can be superior to another. Advertisements promote all kinds of
products and the consumers purchase a product only if it suits their requirements.
Q. 92 Mr. Fanny ordered a mobile phone through an online shopping website. However, on the
due date of delivery, the delivery boy misplaced the packet that he was given.
a. Do you think that there is a deficiency present in the current scenario?
b. Against whom can Mr. Fanny file a case in order to ask for compensation?
Answer
a. Yes there is a deficiency in service. This is because any imperfection or shortcoming that may
occur in the nature of performance of services is known as a deficiency.
b. He can file a case against the online dealer/provider of the service.
Q. 93 For the construction of a highway, state government compulsorily acquired a land from
Mr. Ham. However he found that the compensation given to him was lower than the market price
of the land. Against whom can he file the case?
Answer
Mr. Ham can file a case against the state government under the Consumer Protection Act, 1986.
This is because the Consumer Protection Act is applicable to all types of undertakings,
irrespective of whether big or small, private or public, or in co-operative sector, whether
manufacturer, trader, wholesaler or retailer, supplying goods or providing services.
Q. 94 Identify and explain the following rights of the consumers:
i. To pick out from a variety of products;
ii. To file a complaint in case of a damaged product;
iii. To be protected from hazardous products;
iv. To be informed about their rights.
Answer
The following are the rights given in the question:
i. Right to Choose- „To pick out from a variety of products‟
A consumer has the right to choose from a variety of goods and services at competitive prices as
per his wishes. In other words, the consumer has the right to have access to a variety of products
at fair and competitive prices. Thus, the retailer or the supplier should offer a variety of products
in terms of quality, brand, price, etc. They should not induce the consumers towards the purchase
of a particular product or service.
ii. Right to be Heard- „To file a complaint in case of a damaged product‟
In case of any grievance or dissatisfaction, a consumer has the right to file a complaint. A
consumer can file a legal complaint and seek redressal against any form of exploitation in
appropriate forums established by the government. Today, many consumer organisations and
associations also work in this direction so as to facilitate consumer redressal.
iii. Right to Safety- „To be protected from hazardous products‟
Every consumer has the right to be safeguarded against those goods and services that are
hazardous to life, health and property. For example, manufacturing defects in electrical
appliances or cooking gas cylinders can be highly injurious and dangerous. Thus, the consumer
has the right to be protected against such products.
iv. Right to Consumer Education- „To be informed about their rights‟
A consumer has the right to be educated and be aware of his rights and responsibilities. Along
with this, he has the right to be informed about the remedies that are available to him in case he
faces any exploitation. Many government and non-government organisations also work actively
in this regard.
Q. 95 Ajay gave a cellphone to Anuj. However, he did not take any money from him. Later,
Anuj found out that the cellphone was damaged and is not working properly. Can he file a
complaint against him? Give an appropriate reason to support your answer?
Answer
No, Anuj cannot file a case against Ajay. This is because the cellphone was not a paid good. That
is, Anuj did not have to pay any money for getting the cellphone. The Consumer Protection Act
does not cover those goods that are rendered free of charge. Thus, the cellphone which Ajay gave
to Anuj will not be considered as a good, therefore no complaint can be filed against Ajay.
Q. 96 Narayan bought a new mobile phone from Berry Ltd. company. However, he found it to
be defected. As a result of this he decided to ask the company for a replacement. Which 'right'
can he exercise in the given scenario? Explain.
Answer
The consumer right that Narayan can exercise is „Right to Redressal‟. According to this right, a
consumer has the right to seek redressal or compensation from a company in case of any
exploitation. In other words, he can get the relief from the company in case a product or service
is damaged or falls short of his expectations. In this regard, the Consumer Protection Act
provides for various kinds of compensations, eg., replacement of product, cash compensation,
repair/removal of defects.
Q. 97 Consumer protection is important for protection and promotion of the interests of the
consumers as well as of the business. Do you agree? Give appropriate reasons by stating the
importance for both consumer and business.
Answer
Yes, consumer protection is important to safeguard and promote the interests of both consumers
and the business. The following points highlight the importance of consumer protection from the
point of view of the consumers:
i. Consumer Ignorance- As the consumers at large are ignorant about their rights and various
relieves available to them, it becomes important to make them aware of their rights and
responsibilities. It is important to educate the consumers about consumer protection so that they
can avail their rights in order to safeguard themselves against any kind of exploitation.
ii. Consumer Exploitation- Consumers often face exploitation in the form of unfair trade
practices such as black marketing, hoarding and adulteration. Thus, it becomes necessary to
educate them consumers about their rights and protect them from such unfair trade practices.
iii. Unorganised Consumer Groups- In order to protect the interests of the consumers, they
must organise themselves in the form of consumer groups and organisations. Such organisations
help in providing adequate protection and promotion of the interests of consumers.
The following points highlight the significance of consumer protection from the point of view of
business:
i. Utilisation of Resources-A business uses the resources of society for the production of various
goods and services. It is through the sale of these goods and services to the society that the
business earns profits. Thus, it is their prime responsibility to supply those goods and services
that adhere to the overall interest of the society.
ii. Ethical Reasoning-Today, moral values and ethics play an important role in business. Thus,
it becomes the moral duty of every business to protect the interests of its customers. They must
follow ethical and moral values and avoid any form of exploitation of the consumers such as
unfair trade practices, adulteration, etc.
iii. Responsibility Towards Society-As the business earns profits by selling various goods and
services to consumers in the society, it becomes their responsibility to take due care of
consumers‟ interests and satisfaction.
Q. 98 Harsh bought a laptop from a well-known company. However, it came out to be a
defective piece. When he asked for redressal, the company denied it. Also, due to pressure from
one of the workers working in that company, Harsh did not file a complaint against the company.
Which responsibility of a consumer is not being fulfilled by Harsh in the given scenario?
Answer
The responsibility that is not being fulfilled by Harsh is „filing a complaint‟. According to this, in
case the product is found to be defective or any deficiency is found in the quality of the product,
the consumer must file a complaint in the appropriate forum. Thus, Harsh should file the
complaint without any fear of the company.
Q. 99 Rakesh bought sweets from a well-known sweets shop situated near his house. However,
he fell ill after consuming the sweets. On filing a case against the shop from where he bought the
sweets, the court found the shopkeeper to be guilty. The shopkeeper was found indulging in
adulteration and using harmful ingredients while making sweets.
i. Suggest what all reliefs are available to Rakesh in lieu of the harm caused by the product.
Answer
(i) The following are the reliefs available to Rakesh:
1. Refund the price of the goods paid by him;
2. Payment of compensation in cash for the loss or injury suffered due to the use of hazardous
products;
3. Ceasing the manufacture of hazardous goods;
4. Payment of punitive damages.
Q. 100 Explain the three-tier machinery that was developed to protect the interests of the
consumers.
Answer
Under the Consumer Protection Act, 1986, a three-tier machinery has been set for the redressal
of consumer grievances and complaints. The machinery works at three levels, namely the
District level, State level and the National level. These are also known as the District Consumer
Dispute Redressal Forum (or District Forum), State Consumer Dispute Redressal Commission
(State Commission) and National Consumer Dispute Redressal Commission (National
Commission) respectively. The following is a brief explanation of the machinery under the
Consumer Protection Act:
1. District Forum:
A District Forum has been set up in each district by the concerned State Government. It
comprises a President and two or more members, one of whom should be a woman. A consumer
can file a complaint in a District forum in case the value of goods in question, along with the
compensation that is claimed is less than Rs. 20 lakhs. Moreover, in case the party filing the
complaint is not satisfied with the judgment, an appeal can be filed in the State Commission
within 30 days of passing the judgment.
2. State Commission:
The State Government has set up the State Commission for the redressal of consumer grievances.
Similar to District Forum, the State Commission also comprises of a President and two or more
members, one of whom should be a woman. In the State Commission, a complaint can be filed
by a consumer in case the value of goods/services in question along with the compensation
claimed is more than Rs. 20 lakhs but less than Rs. 1crore. Furthermore, an appeal can be filed
against the order of the Commission before the National Commission within 30 days of passing
the judgment in case of dissatisfaction.
3. National Commission:
The National Commission has been set up by the Central Government. It consists of a President
and four or more members, one of whom should be a woman. A consumer can file a complaint in
the National Commission in case the value of goods in question along with the compensation
claimed is more than Rs. 1 crore. After referring to the sample proofs and on hearing the
concerned party, the commission passes a judgement. In case the aggrieved party is not satisfied
with the judgement, an appeal can be filed before the Supreme Court of India.
