Students must start practicing the questions from CBSE Sample Papers for Class 12 Business Studies with Solutions Set 4 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Business Studies Set 4 with Solutions
Time : 3 hrs Max.
Marks : 80
Instructions
- This question paper contains 34 questions.
- Marks are indicated against each question.
- Answers should be brief and to the point.
- Answers to the questions carrying 3 marks may be from 50 to 75 words.
- Answers to the questions carrying 4 marks may be about 150 words.
- Answers to the questions carrying 6 marks may be about 200 words.
- Attempt all parts of the questions together.
Question 1.
Management helps in achieving group goals.’ This is …………… [1]
(a) meaning of management
(b) one of the concepts of management
(c) an importance of management
(d) one of the features of management
Answer:
(c) an importance of management
Question 2.
Vijay purchased the raw material (required by company in which he is purchase manager) at a higher price from a relative. Which principle is violated here? [1]
(a) Discipline
(b) Equity
(c) Subordination of individual interest to general interest
(d) Order
Answer:
(c) Subordination of individual interest to general interest
Question 3.
Organisation helps in maintaining in working relationships. [1]
(a) ambiguity
(b) clarity
(c) uncertainty
(d) complexity
Answer:
(b) clarity
Question 4.
Who gave the concept of scientific management? [1]
(a) Henry Fayol
(b) Seymour
(c) Philip Kotler
(d) F W Taylor
Answer:
(d) F W Taylor
Question 5.
………. refers to the number of subordinates that can be effectively managed by a superior. [1]
(a) Organisational structure
(b) Span of management
(c) Informal organisation
(d) None of the above
Answer:
(b) Span of management
Question 6.
……………. function is concerned with the important decision of managing inventory. [1]
(a) Product
(b) Price
(c) Promotion
(d) Physical distribution
Answer:
(d) Physical distribution
Question 7.
Assertion (A) Managers need to be given some flexibility to be able to cope with the changed circumstances.[1]
Reason (R) Planning reduces creativity.
Alternatives
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false
(d) Assertion (A) is false, but Reason (R) is true
Answer:
(b) The correct explanation to Assertion (A) is that planning leads to rigidity as managers follow a pre-decided plan and may not be in a position to change when circumstances change.
Question 8.
Mr. NG talks to existing employees for information about candidates in their knowledge who can be recruited in organisation. Which method of recruitment is highlighted here? [1]
(a) Recommendations from present employees
(b) Campus recruitment
(c) Casual callers
(d) Labour contractors
Answer:
(a) Recommendations from present employees
Question 9.
Statement I Divisional head is responsible for profits and losses for his/her division. [1]
Statement II Functional structure is economical than divisional structure.
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement II is true and Statement I is false
(c) Both the statements are true
(d) Both the statements are false
Answer:
(c) Both the statements are true
Question 10.
Fiscon Electricals Ltd was operating its business in London. The company started exporting its products to India when the Prime Minister announced relaxation in import duties on electrial products. The company also appointed retailers in India who had a direct on-line links with the suppliers to replenish stocks when needed. Identify the dimension(s) of business environment highlighted in the given case. [1]
(a) Economic environment
(b) Political environment
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)
Question 11.
Arrange the correct sequence of motivation process in order. [1]
(i) Tension
(ii) Drives
(iii) Search Bha tour
(iv) Unsatisfied need
(v) Satisfied need
(vi) Reduction of tension
Codas
(a) (i), (ii), (iii), (iv). (y). (vi)
(b) (iv), (i), (ii). (iii) (v), (vi)
(c) (i), (iv), (ii (iii), (v), (vi)
(d)(i), (ii), (iv), (iii), (v), (vi)
Answer:
(b) (iv), (i), (ii). (iii) (v), (vi)
Question 12.
Match the following on the basis of limitation of planning. [1]
Column I Column II
Plans are drawn up with heavy expenses (i) Rigidity
Plans decided by top level may not be changed by managers (ii) Huge cost
Planning leads to delay in action (iii) Time consuming
Codes
A — B — C
(a) (i) (ii) (iii)
(b) (ii) (iii) (i)
(c) (ii) (i) (iii)
(d) (iii) (ii) (i)
Answer:
(c) (ii) (i) (iii)
Question 13.
Successful organisations do not achieve goals by chance but by following a delibrate process known as …………….. [1]
(a) planning
(b) controlling
(c) co-ordination
(d) management
Answer:
(d) management
Question 14.
Choose the incorrect statement from the following. [1]
(a) Management is a dynamic process
(b) Management is a continuous process
(c) Management is a goal-oriented process
(d) Management is a rigid process
Answer:
(d) Management is a rigid process
Question 15.
XYZ Ltd. has, in advance, given targets to all its employees. This has lead to more focused approach resulting in saving of resources. All the employees are, therefore, happy and satisfied. Which importance of planning is highlighted in the given case? [1]
(a) Planning facilitates decision-making
(b) Planning provides direction
(c) Planning promotes innovative ideas
(d) Planning reduces the risk of uncertainity
Answer:
(b) Planning provides direction
Question 16.
Shikhar is a sales manager in DC Enterprises. He encourages the rest of 10 team members to set their own objectives and takes decision. He respects the opinions of others and supports them in performing their duties. He interacts with them on personal level about work related issues as well as other topics not related to work or organisation. He doesn’t follow a proper chain of command while interacting with them. Shikhar follows which type of leadership style? [1]
(a) Autocratic
(b) Democratic
(c) Laissez-Faire
(d) Both (b) and (c)
Answer:
(b) Democratic
Question 17.
Joli-a works as the production manager in a company. Due to excess work, he transfer some of his authority of performance to his subordinate Kartik. However, the company did flot like this move as most of the decisions are taken by top level management in the organisation. This created rumours in the organisation about the possible termination of Joli-a. It was later clarified that no such step was taken by the top management. Which type of structure is highlighted in the line, iofra works as the production manager in a company? [1]
(a) Functional
(b) Divisional
(c) None of these
(d) Both of these
Answer:
(a) Functional
Question 18.
Analyse the picture of a factory in which the owner is giving bonus to his worker for making profit due to high production. Demonstrate the principle of Taylor. [1]
(a) Science, not rule of thumb
(b) Cooperation, not individualism
(c) Harmony, not discord
(d) Efficiency and prosperity
Answer:
(c) Harmony, not discord
Question 19.
Which of the following statements is incorrect with respect to business environment? [1]
(a) Business environment is the sum total of all the factors external to a business firm
(b) Business environment is uncertain as it is difficult to predict the future environmental changes
(c) Business environment is dynamic in nature which keeps on changing
(d) Business environment is easy to understand in totality
Answer:
(d) Business ervironment is complex which is easy to understand in parts not in totality.
Question 20.
Statement I Social, legal, technological and political conditions are the specific forces of business environment.
Statement II They have impact on all business enterprises and thus may affect an individual firm only indirectly. [1]
Alternatives
(a) Statement I is true and Statement II is false
(b) Statement I is false and Statement II is true
(c) Both the statements are true
(d) Both the statements are false
Answer:
(b) Social, legal, technological and political conditions are the general forces of business environment.
Question 21.
If planning involves working out details for the future, why does it not ensure success? [3]
Or
Explain how
(i) Adaptation to change, and
(ii) Effective administration, make organising important.
Answer:
The success of an enterprise is possible only when plans are properly made and then implemented. In order to achieve goals, plans need to be translated into action or else, they become meaningless. Managers usually rely on previously tried and tested successful plans and like to use them in every similar condition/situation. It is not necessary that just because the plan has worked before, it will work again. There are so many unknown factors to be considered. The kind of complacency and false sense of security that plans provide, may actually lead to failure instead of success.
Or
(i) Adaptation to Change Organising facilitates modification in organisation structure and revision of inter-relationships among people in order to adapt to environmental changes.
(ii) Effective Administration Organising gives a clear description of duties and responsibilities of each individual. This helps to avoid confusion regarding work and avoids duplication of activities. This helps in bringing efficiency in administration.
Question 22.
Bishnoi Ltd recently proposed to issue commercial paper of ₹ 10,00,000 and equity shares of ₹ 140 each for meeting its capital requirements of diversification. [3]
(i) Quoting the lines, identify the markets from where they would procure the necessary funds.
(ii) Distinguish between the markets identified in (i) on the basis of duration and investment outlay.
Answer:
(i) Money market “Bishnoi Ltd recently proposed to issue commercial paper of ₹ 10,00,000.
Capital market “Equity shares of ₹ 140 each for meeting its capital requirements of diversification.”
(ii) Differences between money market and capital market are
Basis Money Market Capital Market
Duration It deals in securities in short-term, i.e. for a period of less than 1 year. It deals in medium and long-term securities, ie. period of more than 1 year.
Investment
Outlay It requires huge investment outlay as instruments are quite expensive. It does not require huge financial outlay as value of securities is long.
Question 23.
“Directing initiates every action in the organisation”. Considering this statement, list any three reasons why directing is important. [3]
Or
What is meant by ‘leadership’? State any two leadership styles.
Answer:
Directing is important due to following reasons
(i) Provides Leadership Effective directing provides motivation and leadership by the employees, which helps them to identify their potentials and realise their latent capabilities, leading to growth.
(ii) Introduces Changes Changes in an organisation are usually resisted by employees. Through effective direction, a manager can explain the purpose, benefit and offer incentives to adopt such changes to the employees.
(iii) Provides Stability Effective directing helps to develop commitment on part of subordinates. This provides stability to the organisation and helps to achieve balance among various groups, activities and departments.
Or
Leadership is the process of influencing the behaviour of other people so that they work willingly for the attainment of goals in a given situation. The leadership styles are:
Authoritarian or Autocratic Leadership An autocratic leader exercises complete control over the subordinates. He centralises power in himself and takes all decisions without consulting the subordinates.
Democratic or Participative Leadership A democratic leader takes decisions after consultation and encourages the participation of subordinates. He decentralises authority and allows the subordinates to share his power.
Question 24.
Kaushik is a well-known businessman. He decided to send both his children Danush and Damini abroad to acquire a degree in management of business. He is of the opinion that there is a growth in management as discipline, but still it is not considered to be a full-fledged profession. Why management is not considered to be a full-fledged profession? [3]
Answer:
It is not considered to be a full-fledged protession due to the following:
- Restricted Entry Unlike management, the entry to other professions is restricted through an examination or eligibility criteria like specific – percentage in a particular degree or dipioma.
- Professional Association Unlike managers, all working professionals have to be a member of an affiliated protessional association which regulates their entry, grant certiticates of practices and formulates code of conduct.
- Ethical Code of Conduct All professions are subject to an ethical code of conduct which guides the behaviour of its members. However. in management, no such rules and regulations are framed to guide the manager through a code of conduct.
Question 25.
Khushi purchased some household goods from a general store. After reaching home, she found a face cream in her merchandise, for which she has not been billed. After checking the date of expiry and other details, she started using it. Her face burnt due to the use of cream. [4]
(i) Can Khushi file a complaint? Justify your answer.
(ii) Under Consumer Protection Act, 2019, who can file a complaint?
Answer:
(i) No, Khushi cannot file a complaint, as she is not a consumer under the Consumer Protection Act, 2019 because she has not paid any consideration for the face cream.
(ii) Under Consumer Protection Act, 2019, a complaint can be filed by
- Any consumer.
- Any registered consumer association.
- Central or State Government.
- One or more consumers on behalf of numerous consumers.
- Legal heir or representative of deceased consumer.
Question 26.
You are a management guru. In your opinion, is controlling the last function or the beginning of the process of management? [4]
Or
Which function of management helps in obtaining right people and putting them on the right place/jobs? Explain any three benefits of this function.
Answer:
Controlling should not be misunderstood as the last function of management. It is a function that brings the management cycle back to the planning function. In general, the process of management begins with planning and ends at controlling, but when a manager performs the function or steps of controlling, it is observed that the first step of controlling is setting standards. The controlling function finds out how far actual performance deviates from standards and analysis the corrective actions to be taken.
This process helps in formulation of future plans, thus becomes the premise of setting plAnswer:Therefore, we can say that it is the beginning of management process. Thus, it can be stated that, controlling function is both the beginning as well as the end of the management process.
(i) Can Khushi file a complaint? Justify your answer.
(ii) Under Consumer Protection Act, 2019, who can file a complaint?
Answer:
(i) No, Khushi cannot file a complaint, as she is not a consumer under the Consumer Protection Act, 2019 because she has not paid any consideration for the face cream.
(ii) Under Consumer Protection Act, 2019, a complaint can be filed by
- Any consumer.
- Any registered consumer association.
- Central or State Government.
- One or more consumers on behalf of numerous consumers.
- Legal heir or representative of deceased consumer.
Question 26.
You are a management guru. In your opinion, is controlling the last function or the beginning of the process of management? [4]
Or
Which function of management helps in obtaining right people and putting them on the right place/jobs? Explain any three benefits of this function.
Answer:
Controlling should not be misunderstood as the last function of management. It is a function that brings the management cycle back to the planning function. In general, the process of management begins with planning and ends at controlling, but when a manager performs the function or steps of controlling, it is observed that the first step of controlling is setting standards.
The controlling function finds out how far actual performance deviates from standards and analysis the corrective actions to be taken. This process helps in formulation of future plans, thus becomes the premise of setting plAnswer:Therefore, we can say that it is the beginning of management process. Thus, it can be stated that, controlling function is both the beginning as well as the end of the management process.
Or
Staffing is that function of management which helps in obtaining right people and putting them on the right jobs.
Proper stalfing ensures the following three benefits to the organisation:
- Obtaining Competent Personnel It helps in discovering and obtaining competent personnel for various job positions in an organisation.
- Higher Pertormance Staffing ensures high performance by putting right person on the right job.
- Continuous Survival and Growth Proper staffing ensures continuous survival and growth of the enterprise through succession planning of managers.
Question 27.
Discuss in brief the 4 P’s of marketing mix. [4]
Answer:
Marketing mix refers to the combination of four basic elements, which constitute the care of a company’s marketing system. P ‘s of marketing mix are as follows:
- Product it refers to goods or services of anything of value, which is offered in the market for exchange.
- Price It refers to the amount of money, which the customer pays for the products or services.
- Place It is concerned with the availability of products and services at right time and at right place, so that the customers find it convenient to purchase.
- Promotion it refers to the use of communication – tools to provide information to the customer about a product and persuade them to buy it.
Question 28.
Discuss the following features of planning function of management [4]
(i) Planning is a primary function of management
(ii) Planning is pervasive
Or
Discuss the following benefits of organising function of management
(i) Benefits of specialisation
(ii) Clarity in working relationship
Answer:
(i) Planning is a Primary Function of Management It lays down the base for all other functions of management. All other managerial functions are performed within the framework of the plans drawn. Thus, it can be said that planning precedes other functions. This is also called the ‘primacy’ of planning.
(ii) Planning is Pervasive He is required at all levels of management as well as in all the departments of the organisation. It is not a function restricted to top level but it is performed by managers at every level.
While the top management forms organisational plans, middle level does departmental planning. and the lower level makes plans for the day-to-day working of the organisation.
Or
The organising function helps in the growth and survival of an enterprise in a dynamic environment by providing the following benefits:
(i) Benefits of Specialisation Systematic allocation of work reduces the workload as well as enhances productivity. As each task is repetitively performed by a worker, it helps him to gain experience and attain specialisation.
(ii) Clarity in Working Relationships The establishment of working relationships clarifies the lines of communication and specifies who is accountable to whom. Thus, there is no confusion regarding performance of work, foxation of responsibility and communication.
Question 29.
Identify the characteristics of management in the following cases [4]
(i) What managers do in India, the USA, Germany and Japan is the same.
(ii) KFC, the fast food joint, has made several alterations in its menu in order to survive in Indian markets.
(iii) Suhani at Fabmart, stock shelves, maintain cleanlines and receives deliveries of new inventory in a single day on regular basis in series.
(iv) ABC Handicrafts Pvt. Ltd’s objective is to promote the sales of Indian handloom and handicraft products.
Answer:
(i) It is all Pervasive Management is necessary to conduct all types of activities whether it is a business or non-business activity, it is universally applicable in all types of organisations whether political, economic or social.
(ii) It is Dynamic Every organisation interacts with its external environment which includes social, economic and political factor. In order to survive or achieve success, an organisation must change itself and it goals according to the needs of the environment.
(iii) It is a Continuous Process Management is an ongoing process of continuous, composite, but separate functions (planning, organising. staffing, directing and controlling). These functions are simultaneously performed by all managers on a continuous basis.
(iv) It is a Goal-oriented Process The basic aim of management is to achieve the organisational goals. These should be simple and clearly stated. Management achieve these goals through uniting the efforts of the individuals in the organisation.
Question 30.
Timely Ltd is a manufacturer of premium wall clocks. The company has been doing extremely well and has been able to carve a niche in the market. The company recently decided to go global. To achieve the above objective, the company decided to increase its production to 30,000 units per month. But, after two months, the management observed that only 45,000 units were manufactured. Company is opting for a good control system in order to achieve the targets on time. In context to this, give some of the advantages of controlling. [4]
Answer:
Some advantages of good control system are as follows:
(i) Accomplishing Organisational Goals Controlling function measures progress towards the organisational goals and involves taking corrective actions in case of any deviation. it helps to keep the activities on right track, so that goals could be achieved efficiently and effectively.
(ii) Motivation to the Employees It is a source of motivation to the employees, who knows the standards against which their performance will be evaluated.
(iii) Optimum Utilisation of Resources By allocating the resources according to the requirements of the different departments, it helps in optimum utilisation of resources.
(iv) Facilitating Coordination in Action it provides direction to all activities and each department and employee is governed by predetermined standards, which helps in establishing coordination among them.
Question 31.
(i) Explain any two psychological barriers from the following
(a) Premature evaluation
(b) Lack of attention
(c) Loss by transmission and poor retention
(ii) Differentiate between financial incentives and non-financial incentives on any three basis. [3+3=6]
Or
(i) Explain any two organisational barriers from the following
(a) Organisational policy
(b) Rules and regulations
(c) Status
(ii) Differentiate between upward and downward communication on any these basis.
Answer:
(i) The psychological barriers are (any two)
(a) Premature Evaluation Communication is likely to fail, if the receiver evaluates the meaning of message before the sender completes the message. Such premature evaluation may occur due to pre-conceived notions or prejudices against the sender.
(b) Lack of Attention When the receiver’s mind is pre-occupied, he fails to understand what is being said.
e.g. A worker explains some problems to his supervisor, who is pre-occupied with a telephone call. Thus, the supervisor does not grasp the message and worker is disappointed.
(c) Loss by Transmission and Poor Retention When communication passes through various levels, it may result in loss of or transmission of inaccurate information. Sometimes, poor retention of people due to lack of interest and attention leads to miscommunication.
(ii) [1.5 x 2=3]
Basis | Financial Incentive | Non – Financial Incentive |
Meaning | The rewards or incentives which can be calculated in terms of money. | The rewards 0f incentives which can be calculated not, terms of money team |
Satisfaction | It satisfies lower level needs. | It satisfies lower level needs. |
Effective | They are effective in case of lower level employees. | They are effective in case of lowest level employees. |
Or
(i) The organisational barriers are (any two)
(a) Organisational Policy Communication is hampered. if the policy of an organisation does not support the free flow of communication eg. In an organisation width highly centraised pattern, people may not be encouraged to have free communication
(b) Rules arid Regulations Rigid rules and cumbersome procedures act as a barrier to effective communication. Similarly, communication through the prescribed channels may result in delays.
(c) Status Status of a superior may create a psychological distance between him and his subordinates. A status-conscious manager; also may not allow his subordinates to express their feelings freely [15 x 2=3]
(ii) [1.5 x 2=3]
Basis | Upward Communication | Downward Communication |
Meaning | It refers to the flow of information from the lower level to top level. | It refers to the flow of information from top level to the lower level. |
Authority | It is non-authoritative. | It is authoritative. |
Speed | It is slow in speed. | It is fast in speed. |
Question 32.
“The marketing process involves a number of functions or activities to be performed by the marketer to provide goods and services to the customers.” In the light of this statement, explain any six functions of marketing. [6]
Or
Explain the concept of marketing management along with its functions and objectives.
Answer:
The functions of marketing are
(i) Gathering and Analysing Market Information/ Market Research In order to identify the needs and wants of customers, the marketer gathers market information. He analysis the strengths, weaknesses, opportunities and threats of the enterprise. Such analysis helps the marketer to take decisions regarding diversification, improvement in product, expanding markets, etc. For this purpose, computers and online sites are increasingly used.
(ii) Marketing Planning After market research, the marketer has to develop an appropriate marketing plan to achieve the marketing objective of the organisation. It involves taking decisions as to what activities will have to be undertaken to achieve a marketing objective.
(iii) Product Designing and Development The design of a product not only helps to make it attractive, but also helps in improving its performance, providing it a competitive advantage over the other products present in the market.
(iv) Standardisation and Grading Standardisation refers to the process of setting standards regarding quality, price, packaging, technology, equipment, etc, for the production of a product. This ensures uniformity and consistency in output and reduces the need for inspection, testing and evaluation of the products.
Grading is the process of classifying the products into different groups, on the basis of quality, size, features, etc.
It is necessary for such goods which are not produced according to predetermined specifications, such as agricultural goods. Grading ensures that the goods belong to a particular quality and helps the marketer to fix prices easily.
(v) Packaging and Labelling Packaging refers to designing and developing the package for a product. Package refers to the wrapper or container, which not only provides protection to the product, but also acts as a promotional tool for it. Labelling refers to designing and developing the label to be put on the package. A label is a carrier of information. It may be a simple tag or a complex graphic providing details about the product.
(vi) Branding Branding refers to the process of giving a name, sign, symbol or a combination of all to a product for creating its identification. It helps to differentiate the product from other products available in the market. It also helps to build customer’s loyalty and promoting its sales.
Or
Marketing management is the management (planning, organising, directing and controlling) of activities which facilitate exchange of goods/ services between producers and consumers. According to Philip Kotler, “The art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value of management is called marketing management” The functions of marketing management include
- Analysing and planning the marketing activities.
- Implementing marketing plans.
- Setting control mechanism.
Objectives of marketing management are:
- Choosing a target market.
- Getting, keeping as well as growing the customers.
- Creating, developing and communicating superior values for the customers.
- Building the reputation or goodwill.
- Achieving the long-term goals of protitability, growth and stability.
Question 33.
Dev Ltd is a company engaged in the production and distribution of films. The company is an established name in Bollywood. Now the company wants to enter in the regional cinemas also and for this, they are now targeting the South Indian Film Industry. They have launched three films in South with leading actors and actresses and even managed to sign Rajnikanth. To fund its projects, the management takes a decision to raise money for long-term capital needs of business from certain sources. [6]
(i) State the different sources of long-term capital.
(ii) Decision to raise money for long-term capital needs is affected by several factors. Discuss any five such factors.
Answer:
(i) Sources of long-term capital are as follows
- Equity shares
- Preference shares
- Debentures
- Long-term ioarns and advances
- Retained earnings
(ii) The following factors affect the financing decision
(a) Cost The cost of all the sources of tinance is different. The rate of interest on debt, fixed fate of dividend to be paid on preference share capital and the expectations of the shareholders on the equity share capital are in the form of costs. If the situations happen to be favourable, the benefit of cheap finance can be availed of by choosing debt capital.
(b) Risk Debt capital is most risky and from the point of view of risk, it shouid not be used.
(c) Floatation Cost From the point of view of floating costs, retained profit is the most appropriate source. Therefore, its use should be made.
(d) Cash Flow Position If the cash flow position of the compary is good, the payment of interest on the debt and the refund of capital can be easily made. Therefore, in order to take advantage of cheap finance, debt can be given priority.
(e) Level of Fixed Operating Costs in business, there are mainly two types of costs which are as follows
Fixed Operating Cost e.g. Rent of the building, payment of salary, insurance premium, etc. Fixed Financial Cost e.g. Interest on debt. etc. If the level of fixed operating costs is in excess, it is better to keep the fixed financial costs at the minimum. Therefore, debt capital should not be used. On the contrary, if the level of fixed operating cost is low, the use of debt capital is more profitable.
Question 34.
Read the statements given in point (i) and
(ii) and answer the questions that follows [6]
(i) ‘Bharat Express’ specialises in courier services. Its ‘wide range of express package and parcel service’ help business firms to make sure that the goods are made available to the customers at the right place at the right time.
(a) State with reason, whether the working capital requirements of ‘Bharat Express’ will be high or low.
(b) Explain briefly any two factors that affect the working capital requirements of a company.
(ii) Mandeep is planning to open a scissors manufacturing company with his father. For this purpose, he decides to meet a person who owns huge chunk of property, to take a piece of land for his company on lease from him.
(a) State giving reason, how much fixed capital will be required for establishing a company mentioned in above case?
(b) Explain briefly any two factors that affect the fixed capital requirement of a company. (3+3=6)
Answer:
(i) (a) Working capital requirement for Bharat Express will be low, as it is engaged in providing services.
(b) Factors affecting working capital requirement are:
- Nature of Business The basic nature of a business influences the amount of working capital required. A trading organisation and a service industry firm usually needs a smaller amount of working capital as compared to a manufacturing organisation
- Scale of Operations Organisations which operate on a large scale, generally need to maintain high level of inventory and debtors. Such organisations, therefore, require large amount of working capital as compared to the organisations which operate on a lower scale.
(ii)
(a) Mandeep will require a less capital for his company as he has chosen a ‘financial alternative’ in the form of lease.
(b) Factors affecting requirement of fixed capital are as follows:
- Scale of Operations A large organisation operating at a large scale needs higher investment in fixed assets as compared to a small organisation.
- Technology Upgradation Industries in which assets becomes obsolete sooner due to technology upgradation, need higher investment in fixed assets to replace older assets. While companies whose assets are not or least affected by technology upgradation, needs lesser investment.