Business Studies Handbook

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CHAPTER 1
NATURE AND SIGNIFICANCE OF MANAGEMENT
1.Give the meaning of management. (OR) What is management? (2 Marks)

Answer:
Management is a process of getting things done with the aim of achieving goals effectively and
efficiently.
OR
Management is the art of getting things done through and with the help of others in order to achieve the
specific organisational objectives.
2.Define management. (2 Marks)

Answer:
According to Harold Koontz and Heinz Weinrich, “Management is the process of designing and
maintaining an environment in which individuals, working together in groups, efficiently accomplish
selected aims.”
OR
In the words of Kreitner, “management is the process of working with and through others to effectively
achieve organisational objectives by efficiently using limited resources in the changing environment.”
OR
In the words of Robert L. Trewelly and M. Gene Newport, “Management is the process of planning,
organising, actuating and controlling an organisation's operations in order to achieve coordination of the
human and material resources essential in the effective and efficient attainment of objectives.”
3.Give the meaning of the term ‘process’ used in the definition (meaning) of management. (2 Marks)
Answer:
The term ‘process’ used in the definition of management means the primary functions or activities that
management performs to get things done. These functions are planning, organising, staffing, directing
and controlling.
4.Give the meaning of the term “Effectiveness” in management.

OR
What is Effectiveness? (1 Mark)
Answer:
Effectiveness means achieving the goals by completing the given task within the expected time.
5.What is ‘Effectiveness’ concerned with? (1 Mark)

Answer:
Effectiveness in management is concerned with doing the right task, completing activities and achieving
goals.
In simple terms, effectiveness is concerned with the end result.
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6.What is Efficiency? (OR) Give the meaning of the term ‘Efficiency’ in management. (1 Mark)
Answer:
Efficiency means doing the task correctly by using a minimum quantity of resources and with minimum
cost. (Note: This term does not consider the time taken to complete the task).
7.State any two features of management. (2 marks)

Answer:
Two features of management:
1. Management is a goal-oriented process.

2. Management is a continuous process.
3. Management is all pervasive.
8.State any one difference between effectiveness and efficiency. (1 Mark)

Answer:
Difference between effectiveness and efficiency.
Effectiveness Efficiency
1. It gives importance for completing the 1. It gives importance to complete the task by using a
given task within the expected time. minimum quantity of resources and with minimum cost.
2. It does not consider the quantity of 2. It does not consider the time when the task is
resources used and the cost involved in it. completed.
9.Explain the characteristics (or features) of management. (8 Marks)

Answer:
Management is a process of getting things done with the aim of achieving goals effectively and
efficiently. Characteristics of management: Some of the elements or characteristics of management are:
1. Management is a goal – oriented process: Every organisation is established to achieve certain goals.
For example, the goal of a retail store may be to increase sales. It is the management that unites the
efforts of different individuals to achieve these goals of the organisation. Thus, management is a goal –
oriented process.
2. Management is all pervasive: The activities involved in managing an enterprise are common to all
organisations whether economic, social or political. What managers do in India, the USA, Germany or
Japan is the same. Thus, management is all pervasive and management activities are universally
applicable to all organisations.
3. Management is multidimensional: Management is a complex activity that has three main dimensions.
They are:
(a) Management of work: All organisations exist for the performance of some work. E.g., In a factory a
product is manufactured and in a hospital a patient is treated. Management translates this work in terms
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of goals to be achieved and assigns the means to achieve it. Thus, management plans, organises and
controls the work to be done.
(b) Management of people: Management is concerned with “getting work done through people”.
Therefore, management takes necessary steps to recruit, train up and motivate the staff (i.e., employees).
Further, management will make people work towards achieving the organisation's goals by giving
common direction to their efforts. Thus, management manages the people in the organisation.
(c) Management of operations: Management will ensure that various operations of the business such as
finance, purchase, production, sales etc. are conducted efficiently and effectively so that required goods
and services are produced and supplied to the customers.
4. Management is a continuous process: Management is a continuous process consisting of a series of

functions such as planning, organising, staffing, directing and controlling. All the managers perform
these functions regularly. It continues till the organisation lasts.
5. Management is a group activity: Management is a group effort. All the managers and their
subordinates work as a group (i.e., team) in order to achieve the objectives of the organisation.
6. Management is a dynamic function: Management is a dynamic function and adjusts itself to the
changing environment. It changes its goals (objectives), plans, policies, strategies etc., according to the
changing needs of the environment.
E.g., McDonalds made major changes in its menu to be able to survive in the Indian market.
7. Management is an intangible force: Management is an intangible force that cannot be seen but its
presence can be felt in terms of increased production, increased sales revenue, employee satisfaction,
wealth creation etc.
Thus, management is all pervasive, multi-dimensional, continuous and a dynamic function which aims at
achieving the goals of the organisation successfully.
10.State any one feature of management. (1 Mark)

Answer:
Management is a goal-oriented process.
11.State any one dimension of management. (1 Mark)

Answer:
1. Management of work.
2. Management of people.
3. Management of operations.
12.Explain the objectives of management. (8 Marks)

Answer:
Every organisation is established to achieve certain objectives. Management has to achieve all those
objectives effectively and efficiently. The main objectives of management are as follows:
1. Organisational objectives
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2. Social objectives
3. Personal objectives.
1. Organisational objectives: Management is responsible for setting and achieving objectives for the
organisation. In this connection, it should keep in mind the interest of all stakeholders including
shareholders, employees, customers and the government.
The main objective of any organisation is to utilise human and material resources to the maximum
possible advantage, i.e., to fulfil the economic objectives of a business. They are:
(a) Survival, (b) Profit and (c) Growth
(a) Survival: The basic objective of any business is survival. The management must work hard to ensure
the survival of the organisation by earning sufficient (i.e., enough) revenues to cover its costs.
(b) Profit: Mere survival is not enough for business. Management has to ensure that the organisation
makes sufficient (i.e., reasonable) profit. Profit acts as an incentive for the successful continuity of the
business. Profit is also essential for covering costs and risks of the business.
(c) Growth: For the existence of a business organisation for a long period, the management must explore
all its prospects of growth and development. Therefore, management must ensure that there is increase in
production, increase in sales volume, increase in number of employees and increase in capital investment
which are the indicators of growth of an organisation.
2. Social objectives: As a part of society, every organisation has to fulfil certain obligations towards
society, (E.g., corporate social responsibility (CSR), Basically, it involves creation of benefit for society.
Some of the social objectives of management include:
• Protecting the environment by using environmentally friendly methods of production.

• Giving employment opportunities to the deserving (i.e., especially disadvantaged section) people
of the society.
• Providing basic amenities like schools, hospitals and creches to employees and other members of
the society.
3. Personal objectives: Personal objectives are concerned with the employees of the organisation. The
management has to satisfy the diverse needs of the employees to get their whole hearted support in
achieving the organisational objectives. Some of the personal objectives of management are:
• Satisfying the financial needs of the employees by giving them fair salaries, incentives and other
financial benefits.
• Satisfying the social needs of employees by duly recognizing their services (i.e., Peer recognition
or recognition by superiors) in the organisation.
• Satisfying the higher-level needs of employees by creating opportunities for their personal
growth and development.
Thus, management has to fulfil the organisational, social and personal objectives for the success of an
organisation.
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13.State any two objectives of management. (2 Marks)
Answer:
Two objectives of management:
• Organisational objectives: e.g., earning of profit

• Social objectives, e.g., using environment friendly methods of production.
14.State any two organisational objectives of management. (OR) State any two economic objectives of
management. (2 Marks)
Answer:
• Survival,
• Profit
• Growth
15.State any one social objective of management. (1 Mark)

Answer:
• Using environmentally friendly methods of production.

• Giving employment opportunities to the disadvantaged sections of society.
• Providing basic amenities like schools and creches (i.e., nursery where babies and young
children are cared for) to employees. (any one point)
16.State any one personal objective of management. (1 Mark)

Answer:
• Satisfying the financial needs of employees by giving them competitive salaries and perks.
• Satisfying the social needs of employees such as peer recognition.
• Satisfying the higher level needs of employees such as personal growth and development.
17.State any two importance of management. (2 Marks)

Answer:
Two importance of management
• Management helps in achieving group goals.

• Management helps in achieving personal objectives.
18.State any one importance of management. (1 Mark)

Answer:
Management helps in achieving group goals.
Nature of management: Management is a combination of an organised body of knowledge (science) and
its skilful application (art). Thus, management is both an art and a science. Further, to a large extent, it is
professional in character.
19.“Management is considered to be both an art and a science”. Explain.

(OR)
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“Management as an art and a science are not mutually exclusive, but complement to each other.
Elucidate.
Answer:
Management is considered to be both a science and an art. They are not mutually exclusive but
complement each other. The following explanation justifies this point.
Management as an art: Art is the skilful and personal application of existing knowledge to achieve
desired results.
Management is said to be an art since it has the following features of an art:
1. Existence of theoretical knowledge: Like any other art (e.g., dancing or music), in management, there
is existence of theoretical knowledge. Lot of literature is available in various areas of management like
marketing, finance and human resources. Further, various theories of management were developed by
management thinkers, which prescribe certain universal principles.
2. Personalised applications: Like an artist (e.g., dancer or actor), every manager has his own way (style
and approach) of managing the things depending upon his. knowledge and experience. A manager
applies management principles to a given situation, or a problem in his own unique manner. Thus, the
ability of managers to put management principles into practice distinguishes a successful manager from a
less successful one.
3. Based on practice and creativity: Like any art, management involves the creative practice of existing
theoretical knowledge. A good manager works through a combination of practice, creativity,
imagination, initiative and innovation. A manager achieves perfection after long practice.
4. Goal oriented: Like any other art, management is also directed towards completion of the
predetermined
goals.
Therefore, we can conclude that management is an art.
Management as a science: Science is a systematic body of knowledge. Management is considered to be a

science since it has the following features of science:
(1) Systematised body of knowledge: Like science, management has a systematised body of knowledge.
It has its own theory and principles. Management has its own vocabulary of terms and concepts.
(2) Principles based on experimentation: Like scientific principles, management principles are also based
on repeated experiments and observations in different types of organisations. E.g., Scientific
Management principles by F.W. Taylor.
(3) Universal validity: Since management deals with human beings and human behaviour, application
and use of management principles is not universal. They have to be modified according to a given
situation. However, they provide managers with certain standardised techniques that can be used in
different situations.
(4) Cause and effect relationship: Like principles of science, management principles also establish cause
and effect relationship in dealing with various situations in the organisation. E.g., Division of labour
(Cause) results in increased productivity (effect)
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Since management deals with human beings and human behaviour, management can be called an inexact
science.
Conclusion: The practice of management is an art. The practice of a manager is based on the principles –
it is a science. Thus, management is both a science and an art. Further, management as an art and a
science are not mutually exclusive, but complement each other.
20.Is management a science or an art or both? (1 Mark)

Answer:
Management is both a science and an art.
21.What do you mean by levels of management? (1 or 2 Mark)

Answer:
Levels of management means the existence (or presence) of different levels in various managerial
positions of an organisation based on authority responsibility (or superior – subordinate) relationships.
Levels of management:
(1) Top management: Top management is a team consisting of the Board of Directors, the Chairman, the
Chief Executive Officer (CEO), Chief Operating Officer, President, Managing Director, Vice President,
Chief Finance Officer, Vice President (Marketing) and so on. They are superior to other members of the
organisation. They determine overall organisational goals (objectives) and strategies for their
achievement. They also formulate policies and coordinate the activities of different departments. They
are responsible for all the activities of the business.
(2) Middle management: Middle management is the link between top level and lower level managers.
They are subordinate to top managers and superior to the first line (lower level) managers. It includes
division heads. E.g., production manager, purchase manager and so on. Middle management is
responsible for implementing and controlling plans and strategies developed by top management. They
are also responsible for all the activities of first line managers.
(3) Supervisory or Operational Management: Foremen and supervisors comprise the lower level
management. Supervisors interact with the actual work force (i.e., workers) and pass on instructions of
middle management to them. They directly oversee the efforts of the workforce. They are responsible to
minimise wastage of materials and to maintain the quality of output.
22.State any two levels of management. (2 Marks)

Answer:
Levels of management:
• Top management e.g., Chairman

• Middle management, e.g., production manager
• Supervisory or operational management. E.g., Supervisors
23.Give one example for a top-level management position. (1 Mark)

Answer:
• Chairman
• President
• Chief Executive Officer
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24.Give one example for a middle level management position. (1 Mark)
Answer:
• Production manager
• Purchase manager.
25.Give one example for supervisory management.

(OR)
Operational management or lower-level management. (1 Mark)
Answer:
• Supervisors
• Foremen
26.State any two functions of management. (2 Marks)

Answer:
• Planning
• Organizing
• Staffing
• Directing
• Controlling
27.Briefly explain the functions of management.

OR
Management is a series of continuous interrelated functions. Comment. (8 Marks)
Answer:
Management is described as the process of planning, organising, staffing, directing and controlling the
efforts of organisational members and of using organisational resources to achieve specific goals.
Following are the important functions of management:
(1) Planning: Planning is the basic function of management. It is the function of determining in advance
what is to be done and who is to do it. It involves setting the goals in advance and developing a way of
achieving them efficiently and effectively. It requires the formulation of policies, procedures and
budgets. It is an intellectual activity and is being performed continuously by managers at all levels. The
main objective of planning is to ensure proper utilisation of all available resources. It helps to avoid
confusion, wastages, risk etc,,
(2) Organising: Organising is another important function of management. It is the management function
of grouping tasks, assigning duties, arranging and allocating resources and establishing authority
responsibility relationships. Thus, organising involves:
• Identification of the activities (i.e., tasks) and resources required to implement the plan.
• Grouping of the required tasks into manageable departments or work units.
• Assignment of duties.
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• Arranging and allocating resources (i.e., men, money, materials and machinery) required to
carry out a specific plan.
• Establishment of authority and reporting relationships within the organisational hierarchy.
(3) Staffing: Staffing is finding the right people for the right job. The main purpose of the staffing
function is to put the right people with the right qualifications at the right place and time to accomplish
the goals of the organisation effectively and efficiently. This function is also known as the human
resource function.
Staffing involves
• Manpower planning
• Recruitment, selection and placement
• Training and development
• Remuneration
• Performance appraisal
• Promotion and transfer.
(4) Directing: Directing is one of the important functions of management. While planning, organising
and staffing are merely the preparations for doing the work, directing function actually starts the work. It
guides, leads, influences and motivates the subordinates (i.e., employees) to perform the tasks assigned to
them. This enables the subordinates to work effectively and efficiently for the implementation of plans.
It has the following elements:
• Supervision: It involves supervising employees at work.

• Motivation: It involves creating an environment that makes them want to work.
• Leadership: It involves influencing employees to do what the leader wants them to do.
• Communication: It involves communicating effectively with the employees.
(5) Controlling: Controlling is the management function of monitoring organisational performance

towards the attainment of organisational goals. The purpose of controlling is to ensure that everything
occurs in accordance with the plants (i.e., standards set)
Controlling involves
• Establishing standards of performance.

• Measuring current (actual) performance.
• Comparing actual performance with the standard performance and finding out deviation, if
any.
• Taking corrective action.
Thus, in order to achieve the objectives of the organisation, starting from planning till controlling,
management has to perform a series of continuous interrelated functions.
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28.Assuming that you are the manager of an organisation, draw a neat diagram of different levels of
management to specify that authority responsibility relationships create different levels of
management. (5 Marks)
Answer:
Levels of Management
29.State any one function of management. (1 Mark)

Answer:
Planning
30.Give the meaning of coordination. (2 Marks)

Answer:
Coordination is the process by which a manager synchronises the activities of different departments to
bring unity of action in order to achieve the goals of the organisation.
31.Define coordination. (2 Marks)

Answer:
According to McFarland, “Coordination is the process whereby an executive develops an orderly pattern
of group efforts among his subordinates and secures unity of action in the pursuit of common purpose.”
OR
In the words of Theo Haimann, “Coordination is the orderly synchronisation of efforts of subordinates to
provide proper amount, timing, the quality of execution so that their united efforts lead to the stated
objectives, namely, the common purpose of the enterprise.”
OR
According to E.F.L. Brech, “Coordination is balancing and keeping together the team by ensuring
suitable allocation of tasks to the various members and seeing that the tasks are performed with harmony
among the members themselves”
32.What is coordination? Explain the characteristics of coordination. 8 Marks

Answer:
10
Coordination is the process by which a manager synchronises the activities of different departments to
bring unity of action in order to achieve the goals of the organisation.
Following are the characteristics or features of coordination:
• Coordination integrates group efforts: Coordination unifies diverse interests of employees and
gives a common focus to their group effort. It ensures that performance is as it was planned.
• Coordination ensures unity of action: Coordination acts as the binding force between
departments and. ensures unity of action to achieve the goals of the organisation.
• Coordination is a continuous process: Coordination is a continuous process. It begins at the
planning stage and continues till controlling.
• Coordination is an all pervasive function: Coordination is required at all levels of
management. It integrates the efforts of different departments (such as purchase, production
and sales departments) and different levels.
• Coordination is the responsibility of all managers: Coordination is the function of every
manager in the organisation. E.g., middle level management coordinates with both the top
level and first line managers.
• Coordination is a deliberate function: A manager has to coordinate the efforts of different
people in a conscious and deliberate manner.
Thus, being a part of all management functions, coordination is the essence of management.
33.State any two characteristics of coordination. (2 Marks)

Answer:
• Coordination integrates group efforts: Coordination unifies diverse interests of employees and
gives a common focus to their group effort. It ensures that performance is as it was planned.
• Coordination ensures unity of action: Coordination acts as the binding force between
departments and. ensures unity of action to achieve the goals of the organisation.
• 34.State any two importance of coordination.
(OR)
Justify the importance of coordination by any two factors. (2 Marks)
Answer:
• Growth in size: As organisations grow in size, it is through proper coordination, management

can ensure that all individuals work towards the common goals of the organisation.
• Functional differentiation: Coordination helps to link the activities of various departments
(based on functions) such as finance, production, marketing and so on.
• Specialisation: Coordination is required to reconcile the differences in approach, interest or
opinion of the
specialists. (Write any two points)
Multiple choice questions (1 Mark each)
Question 1.
Which of the following is not a function of management
(a) planning
(b) staffing
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(c) cooperating
(d) controlling
Answer:
(c) cooperating
Question 2.
Management is
(a) an art
(b) a science
(c) both art and science
(d) neither
Answer:
(c) both art and science
Question 3.
The following is not an objective of management
(a) earning profits
(b) growth of the organisation
(c) providing employment
(d) policy making
Answer:
(d) policy making
Question 4.
Policy formulation is the function of
(a) top level managers
(b) middle level managers
(c) operational management
(d) all of the above
Answer:
(a) top level managers
Question 5.
Coordination is
(a) function of management
(b) the essence of management
(c) an objective of management
(d) none of the above
Answer:
(b) the essence of management
CHAPTER 2
PRINCIPLES OF MANAGEMENT
1.Give the meaning of Principles of Management. (2 Marks)

Answer:
Principles of management are the statements of basic truths about some phenomena that provide broad
and general guidelines to the managers for decision making and actions.
2.Explain any four characteristics (or features or nature) of principles of management. (4 Marks)
Answer:
Features or characteristics of principles of management: The main features of principles of management
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are:
(1) Universal applicability: Management principles have universal applicability. They can be applied in
all types of organisations, business as well as non-business, small as well as large, public sector as well
as private sector. However, the extent of their application varies from concern to concern. For example,
the principle of division of work is applicable to all organisations.
(2) General guidelines: The principles of management act as general guidelines to the managers. They
play an advisory role in solving the problems.
(3) Formed by practice and experimentation: The principles of management are formed by experience
and collective wisdom of managers as well as experimentation. For example, principle of discipline is
formed by experience
(4) Flexible: The principles of management are flexible and can be modified by the managers according
to the situation. For example, the degree of centralization and decentralisation may be different in each
enterprise depending upon the situations.
(5) Mainly behavioural: Principles of management aim at influencing human behaviour. Therefore, the
management principles are mainly behavioural in nature.
(6) Cause and effect relationship: The principles of management establish a relationship between cause
and effect. They tell us what would be the result if a particular principle is applied in a given situation.
For example, the principle of division of work leads to increase in efficiency. In this case, the division of
work is the cause and the increase in efficiency is the effect.
(7) Contingent: The application of principles of management is contingent or dependent upon the
prevailing
situation at a particular point of time. (Write any four points)
3.Name any one new technique of management developed on the basis of principles of management. (1
Mark)
Answer:
Business process outsourcing (BPO).
4.State any two characteristics (or features) of principles of management. (2 Marks)

Answer:
• Universal applicability: Principles of management have universal applicability.

• General guidelines: Principles of management act as general guidelines to managers.
• Flexible: Principles of management are flexible.
5.State any one characteristic (or feature) of principles of management. ( 1 Mark )

Answer:
Universal applicability: Principles of management have universal applicability.
6.What do you mean by ‘universal applicability’ of principles of management? ( 2 Marks )

Answer:
Universal applicability of principles of management means principles of management can be applied in
all types of organisations business as well as non-business, small as well as large; public sector as well as
private sector.
7.Explain any four points regarding the significance of principles of management. ( 4 Marks )
(OR)
Discuss the significance of principles of management by explaining any four points.
Answer:
Significance or importance of principles of management: Principles of management guide managers in
taking and implementing decisions. Following points will reveal the significance (or importance) of
principles of management.
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(1) Providing managers with useful insights into reality: The principles of management provide the
managers with useful insights into real world situations. They add to their knowledge, ability and
understanding of managerial situations and thus increase managerial efficiency. For example, by
following the principles of delegation, a manager can give routine decision making powers to his
subordinates and can retain authority to deal with exceptional situations.
(2) Optimum utilisation of resources and effective administration: Principles of management equip the
managers to reduce wastages of all kinds such as wastage of materials, wastage of labour time etc. Thus,
management principles enable the managers to make optimum utilisation of resources and lead to the
production of quality products with minimum cost. Principles of management will contribute to effective
administration by limiting the boundary of managerial discretion.
(3) Scientific decisions: Management principles help in thoughtful decision making. They emphasise
logic rather than blind faith. Management decisions taken on the basis of principles are free from bias
and prejudice. They are based on the objective assessment of the situation.
(4) Meeting changing environment requirements: Management principles being flexible, help managers
to meet changing requirements of the environment. For example, management principles emphasise
division of work and specialisation. In modern times, this principle has been extended to the entire
business whereby companies specialise in their core competency areas and outsourcing (BPO) non-core
business such as share transfer and advertising to outside agencies.
(5) Fulfilling social responsibility: Management principles also help managers to fulfil the social
responsibility of business. For example, the principle of ‘equity’ assures fair wages to employees, value
to the customer, care for the environment and so on.
(6) Management training, education and research: Management principles are used as a basis for
management training, education and research. For example, entrance to management institutes is
preceded by management aptitude tests. Professional courses like MBA, BBA also teach these principles
as part of their curriculum. The research on these principles enable the development of new management
techniques like operations research, just in time and so on. (Write any four points)
8.State any two points of significance of principles of management. ( 2 Marks )

Answer:
• Providing managers with useful insights into reality: The principles of management provide
the managers with useful insights into real world situations.
• Optimum utilisation of resources and effective administration: Management principles enable
the managers to make optimum utilisation of resources and lead to increased productivity.
• Scientific decisions: Management principles help in thoughtful decision making.
• Management training, education and research: Management principles are used as a basis for
management
training, education and research.
9.State any one point of significance of principles of management. ( 1 Mark )

Answer:
Providing managers with useful insights into reality: The principles of management provide the managers
with useful insights into real world situations.
10.Define scientific management. ( 2 Marks )

Answer:
In the words of F.W. Taylor, “Scientific management means knowing exactly what you want men to do
and seeing that they do it in the best and cheapest way.”
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11.Who is called the ‘Father of Scientific management’? ( 1 Mark )
Answer:
F.W. Taylor
12.Explain the principles of scientific management.

(OR)
Explain F.W. Taylor’s scientific management principles. (4 Marks)
(OR)
Explain the principles of management contributed by F.W. Taylor.
Answer:
Following are the principles of scientific management (SM) contributed by F.W. Taylor.
1. Science, not rule of thumb: Application of science in the place of Rule of thumb is one of the
principles of scientific management. Under scientific management, each piece of work (e.g., even a small
activity like loading of goods) is scientifically analysed to determine the time and standard method of
doing it with utmost efficiency. The equipment and tools to be used and the working conditions are also
determined scientifically.
Thus, SM involves the development of one best method through study and analysis, which contributes to
save human energy, time and materials. Management should share the gains of the company with the
workers. At the same time, workers should work hard for the prosperity of the company. Japanese work
culture is a classic example of such a situation.
2. Harmony, not discord: Securing an atmosphere of harmony in the place of discord (i.e., lack of
harmony or agreement) is another important principle of scientific management. Under scientific
management, there should be complete harmony of interest between the workers and the managers. To
achieve this, Taylor called for a complete “mental revolution” on the part of both management and
workers.
Both should realise that each one is important and the true interests of the two are one and the same.
Management should share the gains of the company with the workers. At the same time, workers should
work hard for the prosperity of the company.
3. Co-operation, not individualism: Replacing individualism by cooperation is another important
principle of scientific management. Scientific management aims at promoting a spirit of cooperation and
teamwork between management and workers. To achieve this, the management has to receive
constructive suggestions from the employees and they should be rewarded for their good work.
Further, while taking important decisions, workers should be taken into confidence. At the same time,
workers should not go on strike making unreasonable demands on the management.
4. Development of each and every person to his/her greatest efficiency and prosperity: Allowing
development of each worker to his great efficiency and prosperity, and not restricting him is another
important principle of scientific management. This can be ensured by scientific selection of employees,
assignment of work according to their physical and mental capabilities, training them systematically and
rewarding them with promotion and higher wages. This will contribute to their greatest efficiency and
prosperity for both organisation and workers. ,
13.State any two principles of scientific management. ( 2 Marks )

Answer:
• Science, not rule of thumb: Application of science in the place of rule of thumb is one of the
principles of scientific management.
• Harmony, not discord: Securing an atmosphere of harmony in the place of discord is another
important principle of scientific management.
14.State any one principle of scientific management. ( 1 Mark )

Answer:
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• Science, Not Rule of Thumb.
• Harmony, not discord.
15.Explain the functional foremanship of Taylor. ( 4 Marks )

Answer:
Functional Foremanship: Taylor suggested that the performance of foreman / supervisor should be
improved in the factory set up. For this purpose, he identified a list of qualities of a good foreman /
supervisor such as intelligence, education, tact, judgement, energy, honesty and good health.
Since all these qualities could not be found in a single person, Taylor proposed Eight specialists to
perform the job of Foreman. This is known as functional foremanship. Taylor advocated separation of
planning and execution functions.
According to him, under the factory manager there should be planning in charge and production in
charge.
Under planning in charge, there must be:
• Instruction card clerk to draft instructions for the workers.

• Route clerk to specify the route of production.
• Time and cost clerk to prepare time and cost sheet.
• Disciplinarian to ensure discipline.
Under production in charge, there must be:
• Speed boss: To ensure timely and accurate completion of job.

• Gang boss: To keep machines and tools ready for operation by workers.
• Repair boss: To ensure proper working condition of machines and tools.
• Inspector To check the quality of work.
16.Who advocated separation of planning and execution functions in any organisation? (1 Mark)
Answer:
F.W. Taylor
17.What is functional foremanship? (2 Marks )

Answer:
Functional foremanship is an extension of the principle of division of work and specialisation to the shop
floor wherein each worker will get orders and guidance from 8 foremen in the related process or function
of production.
18.Name any two foremen under functional foremanship. (2 Marks)
Answer:
1. Instruction card clerk

2. Route clerk
3. Time and cost clerk
4. Disciplinarian
5. Speed boss
6. Gang boss
7. Repairs boss
8. Inspector
16
19.Name any one foreman under functional foremanship. (1 Mark)
Answer:
Instruction card clerk.
20. ‘She / he keeps machines, materials, tools etc., ready for operations by concerned workers’. Whose
work is described by this sentence under functional foremanship? ( 1 Mark )
Answer:
Gang boss
21.What is ‘standardisation’ according to Taylor? ( 1 or 2 Marks )

Answer:
According to Taylor, “Standardisation refers to the process of setting standards for every business
activity such as standard process, standard raw material, standard time, standard product, standard
machinery, standard methods or working conditions.
22.What is the aim of simplification according to Taylor? ( 1 Mark )

Answer:
According to Taylor simplification aims at eliminating superfluous varieties, sizes and dimensions
(relating to product)
23.How simplification differs from standardisation according to Taylor? ( 1 Mark )

Answer:
According to Taylor, simplification aims at eliminating superfluous varieties, sizes and dimensions while
standardisation implies devising (i.e., creating or developing) new varieties instead of the existing ones.
24.What are the four aspects of work study developed by Taylor? Explain. ( 4 Marks )
Answer:
(1) Method study: The objective of method study is to find out one best way of doing the job. Method
study involves the study of all activities starting from procurement of raw materials till the delivery of the
final product to the customer. For this purpose, many techniques like process charts and operations
research are used.
(2) Motion study: Motion study involves the study of movements like lifting, putting objects, sitting and
changing positions etc. which are undertaken while doing a typical job. Motion study is conducted to
eliminate unnecessary (unproductive) movements so that a job can be completed efficiently by taking
less time. Through motion study, by concentrating only on productive motions, Taylor was able to show
4 times increase in productivity.
(3) Time study: Time study is conducted to determine the standard time required to perform a well-
defined job. Time measuring devices such as stop watches are used to measure the time required for each
element of a task; the standard time is fixed for the whole of the task by taking several readings. For
example, on the basis of several observations it is determined that the standard time taken by the worker
to make one cardboard box is 20 minutes.
So, in one hour a worker will make 3 boxes. Assuming that a worker has to put in 8 hours of work per
day and
one hour is deducted for rest and lunch, it is determined that in 7 hours (8 – 1) a worker makes 21 boxes.
Now this is the standard task a worker has to do. Wages can be decided accordingly.
(4) Fatigue study: Fatigue study is conducted to determine the amount and frequency of rest intervals in
completing a task. A worker has to be given some rest interval to take his/her lunch. If the work involves
heavy manual labour, then small pauses have to be frequently given to the worker so that he / she can
recharge his/her energy level for optimum production.
25.What is the objective of method study according to Taylor? ( 1 Mark )

Answer:
The objective of method study is to find out one best way of doing the job.
17
26.Give the meaning of motion study. ( 2 Marks )
Answer:
Motion study refers to the study of movements like lifting, putting objects, sitting and changing positions
etc., which are undertaken while doing a typical job.
27.What is time study? ( 1 Mark )

Answer:
Time study is a study conducted to determine the standard time to be taken to perform a well-defined job.
28.What is Fatigue study? ( 1 Mark )

Answer:
Fatigue study is a study conducted to determine the amount and frequency of rest intervals in completing
a task. .
29.Give the meaning of differential piece wage system. ( 2 Marks )

Answer:
A piece wage system developed by F.W. Taylor to differentiate between efficient and inefficient workers
whereby efficient workers are given wages at a higher rate per piece and inefficient workers are given
wages at a lower rate piece is called differential piece wage system.
30.Who introduced the differential piece rate system?

(OR)
Who strongly advocated the piece wage system? ( 1 Mark )
Answer:
F.W. Taylor.
31.What is ‘mental revolution’?

(OR)
Give the meaning of mental revolution as propounded by Taylor. ( 2 Marks )
Answer:
The term ‘mental revolution' is a coinage of F.W. Taylor, the father of scientific management. Mental
revolution means a complete change in the mindset and attitude of workers and management towards one
another from competition to cooperation. Both should realise that each one is important and the true
interests of the two are one and the same.
32.Who is known as the Father of General management? ( 1 Marks )

Answer:
Henri Fayol
33.State the number of principles of management propounded by Henri Fayol. ( 1 Mark )

Answer:
14 (Fourteen)
34.Briefly explain any four principles of management contributed by Henri Fayol. ( 4 Marks )
Answer:
Henry Fayol had propounded 14 principles of management. They are:
(1) Division of work: According to this principle, work should be divided into small jobs (or tasks). Each
job should be performed by trained specialists (i.e., specialisation). The aim (or purpose) of division of
work is to produce more and better work for the same effort. In fact, this results in efficient and effective
output.
(2) Authority and responsibility: According to Fayol, managers require authority commensurate with
their responsibility. There should be a balance between authority and responsibility. It means a manager
should have the authority which is sufficient to carry out his responsibility.
18
(3) Discipline: Discipline i.e., obedience to organisational rules and employment agreement is essential
for the successful running of any organisation. A well disciplined work force ensures improvement in the
quantity and quality of production. According to Fayol, discipline requires good superiors at all levels.
(4) Unity of command: According to this principle, there should be only one boss for every individual
employee. Each employee should be commanded (i.e., receive orders) by one superior and be responsible
to that one superior only. This principle helps to avoid confusion regarding tasks to be done.
(5) Unity of direction: According to this principle, each group of activities having the same objective
(e.g., manufacturing motorcycles) must have one head (e.g., leader) and one plan. It ensures unity of
action and coordination.
(6) Subordination of individual interest to general interest: According to Foyol, in any organisation, the
interests of an organisation (i.e., general interest) should take priority over the interests of any one
individual employee. Individual interest of workers should not disturb the interest of the organisation.
(7) Remuneration of employees: The employees should be paid fair and adequate remuneration. At the
same time, it should be within the paying capacity of the company. Thus, it should be just and equitable.
(8) Centralisation and decentralisation: According to Fayol, there is a need to balance subordinates’
involvement in decision making through decentralisation with managers’ retaining final authority
through centralisation.
(9) Scalar chain: According to Fayol, organisations should have a chain of authority and communication
that runs from top to bottom and should be followed by managers and their subordinates. According to
Foyal, this chain should not be violated in the normal course of formal communication. However, in case
of emergency this can be violated so that the communication is not delayed.
(10) Order: According to Fayol, in an organisation, ‘there should be a place for everything / everyone and
everything / everyone must be in its place. Then there will be no hindrance in the activities of business.
(11) Equity: This principle emphasises kindliness and justice in the behaviour of managers towards
workers. This will ensure loyalty and devotion. There should be no discrimination against anyone on
account of sex, religion, language, caste or nationality. The application of this principle made it possible
to see Indians as CEO’s of many MNC’s like Sathya Nadella as CEO in Microsoft, Sundar Pichchai as
CEO of Google.
(12) Stability of personnel: According to Fayol, employee turnover should be minimised to maintain
organisational efficiency.
(13) Initiative: According to Fayol, workers should be encouraged to develop and carry out their plans
for improvements. Initiative (taking the first step with self motivation) should be encouraged.
(14) Esprit De corps: According to Fayol, management should promote a team spirit of unity and
harmony among employees. A manager should replace T with ‘We’ in all his conversations with workers
to foster team spirit.
(Write any four points)
35.As a general manager, list out any ten Fayol’s principles of management which you would like to
adopt in your business organisation. ( 5 Marks )
Answer:
As a general manager, I would like to adopt the following Fayol’s principles of management in my
organisation.
• Division of work
• Authority and responsibility
• Discipline
• Unity of command
• Unity of direction
• Subordination of individual interest to general interest
• Remuneration to employees
• Centralisation and decentralisation
• Scalar chain
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• Order
• Equity
• Stability of personnel
• Initiative
• Esprit De Corps
36.Mention any two principles of management contributed by Fayol. ( 2 Marks )

Answer:
37.Mention any one Fayol’s principles of management. ( 1 Mark )

Answer:
Division of work.
38.What is ‘discipline’ according to Fayol? ( 2 Marks )

Answer:
According to Fayol, discipline means the obedience to organisational rules and employment agreement
which are necessary for the working of the organisation.
39.What is unity of command? ( 2 Marks )

Answer:
Unity of command means, in a formal organisation every individual employee should receive orders
from (i.e., be commanded by) one superior and be responsible to that one superior only.
Therefore, every individual employee should have only one boss.
40.Which management principle of Fayol advocates that there should be only one boss for every
individual employee? ( 1 Mark )
Answer:
Unity of command.
41.What is ‘unity of direction’? ( 2 Marks )

Answer:
Unity of direction means, each group of activities having the same objective must have one head (i.e.,
manager) and one plan. This ensures unity of action and coordination.
42.State any two differences between unity of command and unity of direction. ( 2 Marks )
Answer:
Difference between unity of command and unity of direction.
Basis Unity of Command Unity of Direction
20
One subordinate should receive orders from one Each group of activities having the same
Meaning
superior and should be responsible to only one superior. objective must have one head and one plan.
Aim It prevents dual subordination. It prevents overlapping of activities.
43.What is the scalar chain? ( 2 Marks )

Answer:
Scalar chain is the formal lines of authority from the highest rank to the lowest rank in the organisation.
Scalar chain principle says that every information should pass from top level to bottom level in the scalar
chain.
It is one of the principles of management propounded by Henri Fayol.
44.What is Gang Plank? ( 2 Marks )

Answer:
Gangplank is a shorter route in the scalar chain which allows employees at the same level to
communicate with each other directly to avoid delay in communication. Gangplank can be used only in
case of emergency.
45.When is ‘gang plank’ used? ( 1 Mark )

Answer:
Gangplank can be used only in case of emergency.
46.Which management principle of Fayol states that ‘there should be a place for everything (every one)
and everything (everyone) must be in its (his/her) place’.
Answer:
Order.
47.What is meant by Esprit De Corps? ( 2 Marks )

Answer:
Esprit De Corps means management should take necessary steps to promote a team spirit of unity and
harmony among employees.
A manager should replace ‘I’ with ‘we’ in all his conservations with workers to foster team spirit.
1.Principles of management are not

(a) Universal
(b) Flexible
(c) Absolute
(d) Behavioural
Answer:
(c) Absolute
2.How are principles of management formed?

(a) in a laboratory
(b) by experiences of managers
(c) by experiences of customers
(d) by propagation of social scientists
21
Answer:
(b) by experiences of managers
3.The principles of management are significant because of .

(a) increase in efficiency
(b) initiative
(c) optimum utilisation of resources
(d) adaptation to changing technology
Answer:
(c) optimum utilisation of resources
4.Henri Fayol was a

(a) social scientist
(b) mining engineer
(c) accountant
(d) production engineer
Answer:
(b) mining engineer
5.Which of the following statements best describes the principle of ‘Division of Work’?
(a) Work should be divided into small tasks
(b) Labour should be divided
(c) Resources should be divided among jobs
(d) It leads to specialisation
Answer:
(a) Work should be divided into small tasks
6.She / he keeps machines, materials, tools etc., ready for operations by concerned workers’. Whose
work is described by this sentence under functional foremanship
(a) Instruction card clerk
(b) Repair boss
(c) Gang boss
(d) Route clerk
Answer:
(c) Gang boss
7.Which of the following is not a principle of management given by Taylor?

(a) Science, not rule of the Thumb
(b) functional foremanship
(c) maximum not restricted output
(d) harmony not discord
Answer:
(b) functional foremanship
8.Management should And ‘one best way’ to perform a task. Which technique of scientific management
is defined in this sentence?
(a) time study
(b) motion study
(c) fatigue study
(d) method study
Answer:
(d) method study
9.Which of the following statements best describes ‘Mental revolution’?

(a) It implies change of attitude
22
(b) The management and workers should not play the game of one upmanship.
(c) Both management and workers require each other.
(d) Workers should be paid more wages
Answer:
(a) It implies change of attitude
10.Which of the following statements is False about Taylor and Fayol?

(a) Fayol was a mining engineer whereas Taylor was a mechanical engineer.
(b) Fayol’s principles are applicable in specialised situations where as Taylor’s principles have universal
application
(c) Fayol’s principles were formed through personal experience whereas Taylor’s principles were formed
through experimentation
(d) Fayol’s principles are applicable at the top level of management whereas Taylor’s principles are
applicable at the shop floor.
Answer:
(b) Fayol’s principles are applicable in specialised situations where as Taylor’s principles have universal
application.
CHAPTER 3
MANAGEMENT AND BUSINESS ENVIRONMENT
1.What is the business environment? ( 2 Marks )

Answer:
Business environment means the sum total of all individuals, institutions and other forces that are outside
the control of a business enterprise but that may affect its performance.
2.Explain any four features (or characteristics) of a business environment. ( 4 Marks )

Answer:
Business environment has the following features.
(1) Totality of external forces: Business environment is the sum total of all things external to business
firms. It is aggregative in nature.
(2) Specific and general forces: Business environment includes both specific and general forces. Specific
forces such as customers, suppliers, competitors and investors affect individual enterprises directly and
immediately in their day to day working. General forces such as social, political, legal and technological
conditions affect an individual firm indirectly.
(3) Inter – relatedness: Different elements or parts of the business environment are closely interrelated.
For example, increased awareness for health care has increased the demand for many health products and
services like fat free cooking oil and health resorts.
(4) Dynamic nature: Business environment is dynamic in nature. It keeps on changing. For example,
there may be a shift in consumer preferences, there may be the entry of new competitors in the market
and so on.
(5) Uncertainty: Business environment is largely uncertain. In some areas like information technology
and fashion industries, environment changes are taking place too frequently making it very difficult to
predict future happenings.
(6) Complexity: Business environment is a complex phenomenon. It is easier to understand in parts but
difficult to grasp in its totality. For example, it may be difficult to know the extent of the relative impact
of the social, economic, political, technological or legal factors on change in demand of a product in the
market.
(7) Relativity: Business environment is a relative concept since it differs from country to country and
even region
to the region. For example, demand for sarees is fairly high in India while demand for sarees is almost nil
in France. (Write any four points)
23
3.State any two features of the business environment. ( 2 Marks )
Answer:
Two features of business environment are:
• Totality of external forces: Business environment is the sum total of all things external to
business firms.
• Specific and general forces: Business environment includes both specific forces (such as
customers and suppliers) and general forces (such as social and technological conditions)
• Dynamic in nature: Business environment is dynamic in nature. It keeps on changing.
• Uncertainty: Business environment is largely uncertain.
• Complexity: Business environment is a complex phenomenon.
• Relativity: Business environment is a relative concept (Write any 2 points)
4.Explain any four points to explain how important the understanding of the business environment for a
manager is. (4 Marks)
Answer:
Importance of a good understanding of business environment:
A good understanding of the business environment by business managers helps them in the following
ways.
(1) It enables the firm to identify opportunities and get the first mover advantage: Understanding of the
business environment helps to identify the business opportunities at the earliest. Early identification of
opportunities (positive external change that will help a firm to improve its performance) helps an
enterprise to be the first to exploit them instead of losing them to competitors.
For example, Maruti Udyog became the leader in the small car market because it was the first to
recognize the need for small cars in an environment of rising petrol prices and a large middle-class
population in India. Similarly early identification of online business opportunities (e-commerce) in India
helped Flipkart to become a leader in e-commerce.
(2) It helps the firm to identify threats and early warning signals: Environmental awareness can help
managers to identify various threats (i.e., external environment changes that will hinder a firm’s
performance) on time and serve as an early warning signal.
(3) It helps in tapping useful resources: Better understanding of the environment helps managers to
assemble various resources such as finance, machines, raw materials, power, water, labour etc. from its
environment.
(4) It helps in coping with rapid changes: Better understanding of the business environment helps
managers to develop suitable courses of action to run the business successfully even in the midst of rapid
changes in the business environment such as turbulent market conditions, bargaining customers, changes
in technology and intense global competition.
(5) It helps in planning and policy formulation: Understanding and analysis of business opportunities and
threats (i.e., business environment) will assist the managers in planning (deciding the future course of
action) and in formulation of policies.
(6) It helps in improving performance: Continuous monitoring and understanding of the business
environment helps managers to adopt suitable business practices which improves their present as well as
future performance.
Thus, understanding the business environment helps managers to achieve success in their business.
5.Briefly explain any four dimensions (or elements) of the business environment. (4 Marks )
Answer:
Dimensions (or factors or elements) of a business environment consists of economic, social,
technological, political and legal conditions which are considered relevant for decision making and
improving the performance of an enterprise.
(1) Economic environment: Interest rates, inflation rates, changes in disposable income of people, stock
market indices, and the value of rupee are some of the economic factors that can affect management
24
practices in a business enterprise. For example, in case of construction companies and automobile
manufacturers, low long term interest rates are beneficial because they result in increased spending by
consumers for buying homes and cars on borrowed money.
(2) Social environment: The social environment of business includes the social forces like customs and
traditions, values, social trends, societies expectations from business etc. For example, the celebration of
Diwali, Id and Christmas in India provides significant business opportunities for greeting card
companies, sweets and confectionery manufacturers, tailoring outlets and many other related businesses.
(3) Technological environment: Technological environment includes forces relating to scientific
improvements and innovations which provide new ways of producing goods and services and new
methods and techniques of operating a business. For example, there was a shift in demand from
typewriters to computers due to technological improvement.
(4) Political environment: It includes political conditions such as general stability and peace in the
country and specific attitudes that elected government representatives hold towards business. Political
stability builds up confidence among business people, while political instability can shake that
confidence.
(5) Legal environment: It includes various legislations passed by the government, administrative orders
issued by government authorities, court judgements as well as the decisions rendered by various
commissions and agencies at every level of the government – centre, state or local.
The management of every enterprise has to obey the law of the land. In India a working knowledge of the
Companies Act, 2013, Consumer protection Act, 1986, Factories Act, 1948 and host of other legal
enactments is important for doing business.
6.State any two dimensions of the business environment. ( 2 Marks )
Answer:
1. Technological environment: Technological environment includes forces relating to scientific
improvements and innovations which provide new ways of producing goods and services and new
methods and techniques of operating a business. For example, there was a shift in demand from
typewriters to computers due to technological improvement.
2. Political environment: It includes political conditions such as general stability and peace in the country
and specific attitudes that elected government representatives hold towards business. Political stability
builds up confidence among business people, while political instability can shake that confidence.
7.Show the different elements of the business environment that influence the success of business
enterprises with a neat diagram. ( 5 Marks )
Answer:
Elements of business environment
25
Economic Environment in India: It consists of various macro level factors related to the means of
production and distribution of wealth which have an impact on business and industry. The economic
environment in India has been steadily changing since independence mainly due to govt policies.
As a part of economic reforms the Govt, of India announced a new industrial policy in July, 1991, which
sought to liberate the industry from licensing system, (liberalisation), drastically reduce the role of public
sector (Privatisation) and encourage foreign private participation in industrial development
(Globalisation)
8.What is liberalisation? ( 2 Marks )

Answer:
Liberalising the Indian business and industry from all unnecessary controls and restrictions is called
liberalisation. Liberalisation signalled the end of the licensing system.
9.What is privatisation? ( 2 Marks )

Answer:
Privatisation is the process of transfer of ownership and management of public sector enterprises to the
private sector through the process of disinvestment.
10.Give the meaning of globalization. ( 2 Marks )

Answer:
Globalisation means the integration of the various economies of the world leading towards the
emergence of a global economy.
11.Explain any four challenges that were to be faced by business and industry due to changes in Govt
policy. ( 4 Marks )
OR
Briefly explain the impact of government policy changes on business and industry, (any four points).
Answer:
Business and industry has to face the following challenges due to changes in govt, policy (i.e., The
impact of govt, policy changes on business and industry):
26
• Increasing competition: Competition for firms has increased due to the entry of foreign firms
(which is the result of liberalisation) especially in service industries like telecommunications,
airlines, banking, insurance etc.
• More demanding customers: Being well informed about govt, policy and competition which
is present in the market, customers have become more demanding. They expect better quality
goods and services.
• Rapidly changing technological environment: Increased competition forces the firms to
develop new ways to survive and grow in the market. The rapidly changing technological
environment creates tough
challenges before smaller firms.
• Necessity for change: After the introduction of the policy of liberalisation (After 1991), the
market forces have become turbulent as a result of which the enterprises have to continuously
modify their operations.
• Need for developing human resources: The new market conditions require people with higher
competence and greater commitment. It calls for the development of human resources.
• Market orientation: The government policy changes require the firms to study and analyse the
market first and then produce goods accordingly.
• Loss of budgetary support to the public sector: The central government’s budgetary support
for financing the public sector outlays has declined over the years. The public sector
enterprises have to be more efficient and generate their own resources for the purpose.
On the whole, the impact of government policy changes particularly in respect of liberalisation,
privatisation and globalisation has been positive. Indian enterprises have developed strategies and
adopted business processes and procedures to meet the challenge of competition.
CHAPTER 4
PLANNING
1.What is planning? (2Marks)

Answer:
• Planning means setting objectives and targets and formulating an action plan (i.e.,
determining appropriate course of action) to achieve them.
• In simple, planning is deciding in advance what to do and how to do.
• It is one of the basic managerial of functions.
2.Define planning. ( 2 Marks )

Answer:
Planning is the process of setting objectives for a given time period, formulating various courses of
action to achieve them, and then selecting the best possible alternative from among the various courses of
action available.
3.Explain any four features of planning. ( 4 Marks )

Answer:
Features (or nature) of planning:
Planning function of the management has the following features.
27
• Planning focuses on achieving objectives: Planning is a purposeful function of management.
It is concerned with setting up objectives along with the activities to be undertaken-to achieve
the objectives.
• Planning is a primary function of management: Planning is a primary function of management
as it lays down the base for other functions of management. All other managerial functions
are performed within the framework of the plans drawn.
• Planning is pervasive: Planning function is performed by all levels of management as well as
in all departments of the organisation.
• Planning is continuous: Planning is a continuous process. One plan, after its implementation,
is being followed by another plan (which is drawn on the basis of new requirements and
future conditions).
• Planning is futuristic: Planning involves looking ahead and preparing for the future. The
purpose of planning is to meet future events effectively to the best advantage of an
organisation. Thus, planning is a forward looking function based on forecasting. For example,
based on sales forecasting, a business firm prepares its annual plan for production and sales.
• Planning involves decision making: Planning essentially involves choice from among various
alternatives and activities. Each alternative is evaluated and finally the decision is taken to
select the best alternative.
• Planning is a mental exercise: Planning requires application of the mind. It is basically an
intellectual activity of thinking. Thus, planning involves logical, systematic and orderly
thinking based on the analysis of facts and forecasts which is necessary for determining the
action to be taken.
4.State any two features of planning. ( 2 Marks )

Answer:
Two features of planning:
• Planning focuses on achieving objectives.

• Planning is a primary function of management
5.State any one feature of planning. ( 1 Mark )

Answer:
Planning is a primary function of management.
6.Which function of management involves decision making? ( 1 Mark )

Answer:
Planning.
7.Explain the importance of planning with any four points. ( 4 Marks )

Answer:
Importance of planning:
Planning is deciding in advance what is to be done and how it is to be done. The benefits of planning are:
(1) Planning provides direction: Planning provides direction for action by stating in advance how a work
is to be done. Planning ensures that the goals or objectives are clearly stated so that the employees of the
organisation are aware of what the organisation has to do and what they must do to achieve these goals.
(2) Planning reduces the risk of uncertainty: Planning helps business enterprise to predict (i.e., foresee)
its future uncertain events and enables the organisation to face these uncertainties in the best possible
manner. Thus, planning helps to develop a remedial action against future uncertainties and reduce the
risk of business.
(3) Planning reduces overlapping and wasteful activities: Planning facilitates the coordination of the
activities and efforts of different divisions, departments and individuals and avoids duplication of
activities. Thus, useless and wasteful activities are minimised or eliminated.
28
(4) Planning promotes innovative ideas: Planning is basically a thinking and decision making process.
During the process of planning, many new ideas come to the minds of managers. These innovative ideas
can take the shape of concrete plans leading to growth and prosperity of the business.
(5) Planning facilitates decision making: Planning targets, objectives and courses of action provide the
managers criteria and guidance for the evaluation of the alternatives. It reduces mistakes in decision
making. Thus, planning facilitates managers to make rational decisions.
(6) Planning establishes standards for controlling: Planning facilitates control. Planning determines in
advance the work to be done, the person responsible for doing it, the time to be taken to do the work and
the cost to be incurred. This makes it easy to compare the actual performance with the planned
performance. In case there are deviations, corrective actions are taken to remove the deviations. Thus,
planning provides the base for control.
8.State any two benefits of planning. ( 2 Marks )

Answer:
Two benefits of planning are:
• Planning provides direction for action.

• Planning reduces the risk of uncertainty.
9.State one benefit of planning. ( 1 Mark )

Answer:
Planning provides direction for action.
10.Explain any four limitations of planning. ( 4 Marks )

Answer:
Limitations of planning:
(1) Planning leads to rigidity: Planning makes the subordinate managers work according to plans. They
cannot change the plans even if the circumstances have changed. This kind of rigidity in plans may create
difficulty.
(2) Planning reduces creativity: Planning reduces the creativity of the subordinate managers as they have
to just implement the plans given by the top management. They are not allowed to deviate from plans and
are not permitted to act on their own.
(3) Planning involves huge costs: Planning is a costly process. Huge costs are involved in the formulation
of plans. Collection and analysis of different information, determination and evaluation of the alternative
courses of action and selection of the best course of action involve huge expenses, (e.g., expenses on
boardroom meetings, discussions with professional experts etc.) Sometimes, the cost incurred on
planning may exceed its benefits.
(4) Planning is a time-consuming process: Planning process is time consuming. Collection and analysis
of the facts and information, determination and evaluation of the alternative courses of action and
selection of the best course of action involves much time.
(5) Planning may not work in a dynamic environment: Business functions in a dynamic environment.
Therefore, planners cannot foresee everything. Further, planners do not have control over certain
dynamic environmental factors like economic, political, legal, social and technological conditions. Any
change in these factors (e.g., change in technology) will affect the course of action (i.e., plan).
(6) Planning does not guarantee success: The success of an enterprise is possible only when the plans are
properly drawn up and implemented. But planners formulate the plans for the future which are
unpredictable. Further, planning based on any wrong information may lead to difficulties. Therefore,
planning does not guarantee success.
Despite its limitations, planning is not a useless exercise. It provides a base for analysing future courses
of action.
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11.State any two limitations (or disadvantages) of planning. ( 2 Marks )
Answer:
Two limitations (disadvantages) of planning are:
• It is a.time consuming process.

• It involves a huge cost.
12.State a limitation of planning. ( 1 Mark )

Answer:
Planning is a time consuming process.
13.Explain the first two steps taken by management in the planning process. ( 4 Marks )
Answer:
Planning is deciding in advance what to do and how to do it. It is a decision making process. Every
manager has to follow the following logical steps in the planning process.
(1) Setting up objectives: The first step in planning is setting up objectives (i.e., the end results to be
achieved). The objectives should clearly specify what the organisation wants to achieve. E.g., earning a
profit or 30% on investment. The objectives are set by the top management. The objectives should be set
for the entire organisation and for each department within the organisation. They must be specific,
realistic and in measurable terms.
(2) Developing planning premises: Planning is concerned with accomplishment of objectives in an
uncertain future. Therefore, while formulating plans the manager is required to make certain assumptions
(i.e., Planning premises) about the future. For example, a manager may assume that the tax rate may go
up by 2% within a month. Similarly, he may assume that interest rates may go down by 1% in the next
week.
Accurate forecasting is important in developing planning premises. Forecasts can be made about the
demand for a particular product, policy change, interest rates, tax rates etc. Plans should be formulated by
the management within the framework of the planning premises.
(3) Identification of alternative courses of action: Once objectives are set and assumptions are made, then
alternative courses of action are to be identified to achieve the set objectives. In fact, there will be more
than one way for achieving the same objective.
E.g., if a company wants to increase the profits by 20% over last year’s profit, it can do so by increasing
the sales volume or by reducing the cost or by increasing the selling price or by introducing a new
product or by a combination of two or three of these factors. Therefore, in the light of the analysis of the
information gathered, the management must identify all possible courses of action.
(4) Evaluating alternative courses of action: After identifying the possible alternative courses of action,
each of the possible courses of action has to be evaluated. That is, the strengths and weaknesses (i.e., the
positive and negative aspects) of each of the possible alternative course of action must be examined
against factors like cost including interest and tax, benefits like earnings per share and dividend, risk,
availability of facilities etc.
(5) Selecting the best alternative: This is the real point of decision making. After evaluating the positive
and negative aspects of each and every possible course of action, the best possible course of action is to
be selected. The ideal or best course of action must be feasible, profitable and with minimum negative
consequences.
(6) Implementing the plan. The next step is to implement the selected plan. This involves putting the plan
into action (i.e., doing what is required) to achieve the set goals. Implementation of the plan requires the
formulation of policies, procedures, budgets and programmes. Further, it requires delegation of the
requisite authority and responsibility to the subordinates. It also requires the cooperation, participation
and commitment of the subordinates.
(7) Follow up action: Planning process involves follow up action. It is necessary to check the progress in
the
implementation of plans and to note down deviation for taking necessary action. Follow up action will
ensure that objectives are achieved effectively and efficiently. Thus, starting from setting objectives till
30
follow up action, the planning process involves performance of many important activities. (Write first
two points)
14.State the different steps taken by management in the planning process.

Answer:
Every manager has to follow the following logical steps in the planning process.
• Setting up of objectives
• Developing planning premises
• Identification of alternative courses of action
• Evaluating alternative courses of action
• Selecting the best alternative
• Implementing the plan
• Follow up action
15.State the function of management which determines the objectives of an organisation. ( 1 Mark )
Answer:
Planning
16.Mention the first step of the planning process. ( 1 Mark )

Answer:
Setting objectives
17.As a manager what logical steps you follow in the planning process before executing a project. ( 5
Marks )
Answer:
As a manager, I would like to follow the following logical steps in the planning process before executing
a project.
18.State the first two steps in the planning process. ( 2 Mark )

Answer:
First two steps in planning process are:
31
• Setting objectives
• Developing planning premises.
19.What are ‘planning premises’? ( 2 Marks )

Answer:
Planning premises are the assumptions about the future conditions and events like trends in population,
changes in political and economic environment, variation in production cost and prices, government and
legal regulations. These assumptions are the base material upon which plans are to be drawn. Based on
forecasts made about the demand for a particular product, policy change, interest rate, tax rate etc.,
planning premises are developed (i.e., assumptions are made)
20.What is ‘decision making’ in planning? ( 2 Marks )

Answer:
Decision making is a process of selecting the best course of action from various available alternatives
after evaluating each one of them.
21.Which function of management involves decision making? ( 1 Mark )

Answer:
Planning
22.What is a single – use plan? ( 1 Mark )

Answer:
A plan developed for a one-time event or project is called a single – use plan, e.g., budgets.
(Note: These plans are prepared for non-recurring situations, the duration of this plan may be a day, a
week or a month, depending upon the type of the product. For example, a plan to organise an event or a
seminar or conference may be for only one day).
23.Give an example for a single use plan. ( 1 Mark )

Answer:
• Budgets
• Programmes
• Projects
(Write any one example)
24.What is a standing plan? ( 1 Mark )

Answer:
A plan designed and used for activities that occur regularly over a period of time is called a standing plan
e.g., policies.
(Note: It is usually developed once but is modified from time to time to meet business needs as required.
It enhances efficiency in routine decision making)
25.Give an example for a standing plan. ( 1 Mark )

Answer:
• Policies
• Procedures
• Methods
• Rules
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26.Give an example for a plan which is neither a single – use plan nor a standing plan. (1 Mark )
Answer:
• Strategy
• Objectives
27.Explain any two types of plans. ( 4 Marks )

Answer:
Based on what the plans seek to achieve, the plans can be classified as:
(1) Objectives: Objectives are the desired end result which the management of an organisation seeks to
achieve by its operations.
In simple terms, an objective is what the management of an organisation wants to achieve, i.e., the end
result of activities. For example, an organisation may have an objective of increasing sales by 20%, or it
may have an objective of earning a 30% profit on investment and so on. All other managerial activities
are directed towards achieving these objectives. Objectives are usually set by the top management. They
serve as a guide for overall business planning.
The objectives should be specific, realistic and in measurable terms. Usually objectives are put in the
form of a written statement of desired results to be achieved in a given period of time.
(2) Strategy: Strategy is a comprehensive plan for achieving (i.e., accomplishing) the objectives of an
organisation. This comprehensive plan includes three dimensions:
• Determining long term objectives.

• Adopting a particular course of action to achieve the objectives, and
• Allocating resources necessary to achieve the objective
Major strategic decisions will include decisions like whether the organisation will continue to be in the
same line of business, or combine new lines of activity with the existing business.
Strategies are formulated by the top management for the successful accomplishment of the objectives in
the competitive environment.
(3) Policy: Policies are general statements that guide the thinking of decision makers. They are guides to
managerial action and decisions in the implementation of strategy. For example, the company may have a
recruitment policy, pricing policy, purchase policy, sales policy etc. within which objectives are set and
decisions are made.
Policies define the broad parameters within which a manager may function. For example, the sales policy
of a company states that goods should be sold only on cash basis, then the sales manager cannot permit
salesmen to sell goods on credit basis. Thus, a policy makes it easier to resolve problems or issues.
Thus, by providing guidelines for thinking and action, policies enable the decision makers to take
decisions without any confusion.
(4) Procedure: Procedures are routine steps on how to carry out activities. They provide details about the
exact manner in which any work is to be performed. They are specified in a chronological order. For
example, there may be a procedure for requisitioning supplies before production. Thus, procedures are
specified steps to be followed in particular circumstances, e.g., (1) Procedure for purchase of materials.
(2) Procedure for recruitment of staff.
(5) Method: Methods provide the prescribed ways or manner in which a task has to be performed. It deals
with a
task comprising one step of a procedure and specifies how this step is to be performed. The method may
vary from task to task.
Selection of the proper method saves time, money and effort and increases efficiency. For imparting
training to employees, different methods can be adopted. For example, for higher level management –
orientation programmers, lecturers and seminars may be organised; whereas for the supervisory level –
on the job training methods are appropriate.
33
(6) Rule: Rules are specific statements that inform what is to be done. It reflects the managerial decision
that a certain action must or must not be taken. In simple, rules are the specific statements which
prescribe the code of behaviour to the people of the organisation. E.g., Wear ID cards in the workplace.
(7) Programme: Programmes are detailed statements about a project which outlines the objectives,
policies, procedures, rules, tasks, human and physical resources required and the budget to implement
any course of action. E.g., Programme for opening 10 new branches by the end of the year 2018.
(8) Budget: A budget is a statement of expected results expressed in numerical terms. It is a plan which
quantifies facts and figures. For example a sales budget may forecast the sales of different products in
each area for a particular month.
Examples of budgets:
• Cash budget
• Sales budget
• Production budget
28.Mention any two types of plans. ( 2 Marks )

Answer:
Two types of plans
• Objectives
• Strategy
29.State a type of plan. ( 1 Mark )

Answer:
Objectives
30.What do you mean by ‘objectives? ( 2 Marks )

Answer:
Objectives are the desired end results which the management of an organisation seeks to achieve by its
operations. e.g., an organisation may have an objective of increasing sales by 20%.
OR
Objectives are the desired future position that the management would like to reach.
31.What is a strategy? ( 2 Marks )

Answer:
Strategy is a comprehensive plan for accomplishing (i.e., achieving) the objectives of an organisation. It
is a course of action which helps to beat the competition.
32.What is a policy? ( 2 Marks )

Answer:
Policies are general statements that guide thinking or channelize energies towards a particular direction.
They are guides to managerial action. They define the broad parameters within which a manager may
function.
Example of policies
• Pricing policy,
• Recruitment policy
33.Give an example for policy. ( 1 Mark )

Answer:
34
• Pricing policy,
• Recruitment policy,
• Purchase policy
(Write any one)
34.What is a procedure? ( 2 Marks )

Answer:
Procedures are routine steps on how to carry out activities. They provide details about the exact manner
in which any work is to be performed.
35.What is the ‘method’ under planning? ( 1 Mark )

Answer:
Method is the prescribed way or manner in which a task has to be performed.
36.State the meaning of ‘Rule’. ( 1 Mark )

Answer:
Rules are specific statements that inform what is to be done. They are the simplest type of plans.
37.Give the meaning of programme. ( 2 Marks )

Answer:
Programmes are detailed statements about a project which outlines the objectives, policies, procedures,
rules, tasks, human and physical resources required and the budget to implement any course of action.
38.What is a budget? ( 1 Mark )

Answer:
A budget is a statement of expected results expressed in numerical terms. It is a type of plan. E.g., sales
budget.
39.Give an example of a budget. ( 1 Mark )

Answer:
• Sales budget
• Cash budget
(Write any one)
1.Which of the following statements is not correct with regard to planning?

(a) It is a mental exercise
(b) It provides direction for the future actions
(c) It is end function in the process of management
(d) It involves setting objectives and developing courses of actions
Answer:
(c) It is end function in the process of management
2.Which of the following is not the feature of the planning?

(a) It focuses on achieving objectives
(b) It involves identification and division of work
(c) It is primary function of the management
(d) It is a pervasive function
Answer:
(b) It involves identification and division of work
35
3.Which of the following is an example for the single use plan?
(a) policy
(b) procedure
(c) budget
(d) method
Answer:
(c) budget
4.Which of the following is an example for standing plan?

(a) Budget
(b) programmes
(c) strategy
(d) policies
Answer:
(d) policies
5.Which of the following is not a type of plan?

(a) objectives
(b) coordination
(c) budget
(d) rule
Answer:
(b) coordination
CHAPTER 5
ORGANISING
1.Which management function translates the plans into action? ( 1 Mark )

Answer:
Organising
2.Give the meaning of organising. ( 2 Marks )

Answer:
Organising is a process which coordinates human efforts, assembles resources and integrates both into a
unified whole to be utilised for achieving specified objectives.
OR
Organising is a process that initiates implementation of plans by clarifying jobs and working
relationships and effectively deploying resources for attainment of identified and desired results (goals).
3.Define organising. ( 2 Marks )

Answer:
According to Theo Haimman, “Organising is the process of defining and grouping the activities of the
enterprise and establishing authority relationships among them.”
OR
According to Louis Allen, “Organising is the process of identifying and grouping the work to be
performed, defining and delegating responsibility and authority, and establishing relationships for the
purpose of enabling people to work most effectively together in accomplishing objectives.”
36
4.What are the steps in the process of organising?
(OR)
State the steps in the organising process.
(OR)
State any two steps in the organising process. ( 2 Marks )
Answer:
Steps in organising process:
• Identification and division of work.

• Departmentalisation
• Assignment of duties
• Establishing reporting relationships.
5.What is organising? Explain the importance of organising. ( 8 Marks )

Answer:
Organising is a process which coordinates human efforts, assembles resources and integrates both into a
unified whole to be utilised for achieving specified objectives.
OR
Organising is a process that initiates implementation of plans by clarifying jobs and working
relationships and effectively deploying resources for attainment of identified and desired results (goals).
Organising function helps in the survival and growth of an enterprise and equips it to meet various
challenges. Proper performance of organising function enables a business enterprise to successfully meet
its goals.
The following points highlight the importance of organising in any business enterprise.
(1) Benefits of specialisation: Organising leads to a systematic allocation of jobs among the workforce
(employees). Right person is placed in the right job. It leads to specialisation and increases the efficiency
and productivity of employees.
(2) Clarity in working relationships: Organising helps in establishing working relationships. It clearly
defines the authority and responsibility of each individual in an organisation. Every individual has clarity
as to whom he can give orders and from whom he has to receive orders.
(3) Optimum utilisation of resources: Organising ensures proper allocation of jobs. It leads to optimum
(i.e., efficient) use of material, financial and human resources. This also avoids duplication of work and
helps in minimising the wastage of resources.
(4) Adaptation to change: The process of organising allows a business enterprise to accommodate
changes in the business environment. It allows the organisation structure to be suitably modified.
(5) Effective administration: Organising provides a clear description of jobs. This helps to avoid
confusion and duplication. Clarity in the working relationships enables proper execution of work. Thus,
management of an enterprise becomes easy and this brings effectiveness in administration.
(6) Development of personnel: Organising stimulates creativity among managers. By providing well
defined areas of work and ensuring delegation of authority, organising provides sufficient freedom to the
managers and encourages their initiative and creativity. Thus, it helps the managers to grow and develop
to their full potential.
(7) Expansion and growth: Organising promotes growth and diversification of an enterprise. It enables
the enterprise to take up new challenges. It allows a business enterprise to add more job positions,
departments, new products and new geographical territories. This will help to increase customer base,
sales and profit.
Thus, organising is a process by which the manager brings order out of chaos, removes conflict among
people over work or responsibility sharing and creates an environment suitable for team work.
6.What is organisation structure? ( 1 or 2 Marks )

Answer:
Organisation structure is the framework within which managerial and operating tasks are performed.
37
7.What is the meaning of span of management? ( 1 Mark )
Answer:
Span of management refers to the number of subordinates that can be effectively managed by a superior.
8.State any one type of organisation structure. ( 1 Mark )

Answer:
• Functional structure, and

• Divisional structure
(Write any one)
9.What is a functional structure? State any three advantages and any three disadvantages of it. ( 8 Marks )
Answer:
Grouping of jobs of similar nature as major functions and organising these major functions as separate
departments is called functional structure. For example, in a manufacturing concern, there may be
purchase department, production department, marketing department and finance department.
Chart showing functional structure.
Functional Structure:
Advantages of functional structure:
• A functional structure leads to occupational specialisation. This promotes efficiency in

utilisation of manpower.
• It promotes control and coordination within a department.
• It helps in increasing managerial and operational efficiency which results in increased profit.
• It avoids duplication of efforts and thus reduces cost.
• It makes training for employees easier.
• It ensures that different functions get due attention.
(Write any three points)
Disadvantages (or Limitations) of functional structure
• The functional structure places less emphasis on overall enterprise objectives because it gives
greater emphasis on the objectives pursued by a functional head.
• It may lead to problems in coordination as information has to be exchanged across
functionally differentiated departments.
• A conflict of interests may arise when the interests of two or more departments are not
compatible, (i.e., not in harmony or not well suited) For example, the sales department
38
insisting on a customer friendly design may cause difficulties in production. Such dissension
(i.e., disagreement) can prove to be harmful in terms of fulfilment of organisational interest.
• It may lead to inflexibility. Further, functional heads do not get training for top management
positions.
10.What is a divisional structure? State any three advantages and any three limitations (disadvantages) of
it. (8 Marks)
Answer:
A Divisional structure is a structure which groups activities on the basis of products. A separate division
is created for each major product in a business enterprise. For example, a large company may have
divisions like cosmetics, garments, footwear etc. Within each division the functional structure is also
adapted.
Each division is headed by a divisional manager who is responsible for the profit or loss of his division.
Organisation chart showing divisional and functional structure:
Advantages (Benefits) of Divisional Structure:
• Product specialisation helps in the development of varied skills in a divisional head and this
prepares him for higher positions.
• It makes divisional heads accountable for profits. It also helps in fixation of responsibility in
cases of poor performance of the division and appropriate remedial action can be taken.
• It facilitates expansion and growth. A new division can be added by merely adding another
divisional head and staff for the new product line.
• It promotes flexibility and initiative.
Disadvantages of Divisional Structure:
• Conflict may arise among different divisions with reference to allocation of funds.
• It may lead to increase in costs since there may be a duplication of activities (i.e., separate
marketing, purchasing and other functional departments for each division) across products.
• Divisional managers may ignore organisational interests.
11.To which type of business enterprise a divisional structure is suitable? ( 1 Mark )

Answer:
Divisional structure is suitable for those business enterprises where a large variety of products are
manufactured.
39
12.Which type of organisation structure is suitable for enterprises having a large variety of products? ( 1
Mark )
Answer:
Divisional structure
13.State any two differences between functional structure and divisional structure. ( 2 Marks )
Answer:
Differences between functional structure and divisional structure:
14.Draw the organisation chart showing divisional and functional structure. ( 5 Marks )
Answer:
Organisation Chart Showing Divisional and Functional Structure.
15.Give the meaning of formal organisation. ( 2 Marks )

Answer:
Formal organisation refers to the organisation structure which is designed by the management to
accomplish a particular task. It specifies clearly the boundaries of authority and responsibility and there
is a systematic coordination among the various activities to achieve organisational goals.
(OR)
The formal organisation is a system of well-defined jobs, each bearing a definite measure of authority,
responsibility and accountability. (Louis Allen).
16.State any two features of formal organisation. ( 2 Marks )
Answer:
Features of Formal Organisation:
40
• It specifies the relationships among various job positions and the nature of their
interrelationship. This clarifies who has to report to whom.
• It is a means to achieve the objectives specified in the plans as it lays down the rules and
procedures essential for their achievement.
• Efforts of various departments are coordinated, interlinked and integrated through the formal
organisation.
• It is deliberately designed by the top management to facilitate the smooth functioning of the
organisation.
• It places more emphasis on work to be performed than inter personal relationships among the
employees.
• The structure in a formal organisation can be functional or divisional.
(Write any two points)
17.State the advantages and disadvantages of formal organisation. ( 8 Marks )

Answer:
Formal organisation enables smooth functioning of the enterprise by properly providing job description
and rules and procedures related to work processes.
Advantages of formal organisation:
• It is easier to fix responsibility since mutual relationships are clearly defined.

• There is no ambiguity in the role that each member has to play as duties are specified. This
also helps in avoiding duplication of effort.
• Unity of command is maintained through an established chain of command.
• It leads to effective accomplishment of goals by providing a framework for the operations to
be performed.
• It provides stability to the organisation.
Disadvantages (or limitations) of formal organisation:
• The formal communication may lead to procedural delays as the established chain of
command has to be followed which increases the time taken for decision making.
• Poor organisation practices may not provide adequate recognition to creative talent, since it
does not allow any deviations from rigidly laid down policies.
• It is difficult to understand all human relationships in an enterprise as it places more emphasis
on structure and work. Hence, the formal organisation does not provide a complete picture of
how an organisation works.
18.Give the meaning of informal organisation. ( 2 Marks )

Answer:
A network of social relationships among employees’ that arise spontaneously due to interaction among
people at work is called informal organisation.
OR
According to Keith Davis, “Informal organisation is a network of personal and social relations not
established or required by the formal organisation but arising spontaneously as people associate with one
another.”
19.State any two features of informal organisation. ( 2 Marks )
Answer:
Features of informal organisation:
• An informal organisation originates from within the formal organisation as a result of

personal interaction among employees.
41
• It emerges spontaneously and is not deliberately created by the management.
• The standards of behaviour evolve from group norms rather than officially laid down rules
and regulations.
• Independent channels of communication without specified direction of flow of information
are developed by group members.
• It has no definite structure or form because it is a complex network of social relationships
among members.
20.State any two advantages (or Benefits) of informal organisation. ( 2 Marks )

Answer:
Advantages (or Benefits) of informal organisation:
• The informal organisation leads to faster spread of communication since prescribed lines of
communication are not followed. It also enables the organisation to get quick feedback.
• It helps to fulfil the social needs of the members and allows them to find like minded people.
This enhances their job satisfaction since it gives them a sense of belongingness in the
organisation.
• It contributes towards fulfilment of organisational objectives by compensating for
inadequacies in the formal organisation. For example, employees' reactions towards plans and
policies can be tested through the informal network.

21.State any two disadvantages of informal organisation. ( 2 Marks )
Answer:
Disadvantages of informal organisation:
• It acts as a disruptive force against the interest of the formal organisation.

• The management may not be successful in implementing changes if the informal organisation
opposes them. Such resistance to change may delay or restrict growth.
• It pressurises members to conform to group expectations. This can be harmful to the
organisation if the norms set by the group are against organisational interests.
22.State any two elements of delegation. ( 2 Marks )

Answer:
Elements of delegation:
• Authority
• Responsibility
• Accountability
23.Distinguish between formal and informal organisation. ( 8 Marks )

Answer:
In most of the business houses both the formal and informal organisations are found. The management
should skilfully take advantage of both the formal and informal organisation.
42
Following are the differences between formal and informal organisation:
24.What is delegation? ( 2 Marks )

Answer:
Delegation refers to the downward transfer of authority from a superior to a subordinate. It is a
prerequisite to the efficient functioning of an organisation.
(OR)
Delegation is the entrustment of responsibility and authority to another and the creation of accountability
for performance.
(OR)
According to Theo Haimman, “Delegation of authority merely means the granting of authority to
subordinates to operate within prescribed limits.”
(OR)
Delegation is the process of transferring the required authority by a superior to his subordinate to enable
him to discharge the duty assigned to him.
25.State any one element of delegation. ( 1 Mark )

Answer:
Authority
26.Give the meaning of authority.

(or)
What is Authority? ( 1 or 2 Marks )
Answer:
Authority refers to the right of an individual to command his subordinates and to take action within the
scope of his position.
(OR)
Authority is the right of a manager to tell people (subordinates) as to what they should do and expect
them to do it.
(OR)
According to Henri Fayol, “Authority is the right to give orders and obtain obedience”.
27.Give the meaning of ‘Responsibility’.

(OR)
What is responsibility? ( 1 or 2 Marks )
43
Answer:
Responsibility is the obligation of a subordinate to properly perform the assigned duty.
28.What is accountability? ( 1 or 2 Marks )

Answer:
Accountability means being answerable for the final outcome (i.e., results).
Subordinate will be accountable to a superior for satisfactory performance of work. It indicates that the
manager
has to ensure the proper discharge of duties by his subordinates.
29.Can accountability be delegated? ( 1 Mark )

Answer:
No. Accountability cannot be delegated.
30.State any two differences between authority and responsibility. ( 2 Marks )

Answer:
Differences between authority and responsibility:
Basis Authority Responsibility
It is an obligation to perform
Meaning It is right to command.
an assigned task.
Delegation Can be delegated. Cannot be entirely delegated.
Origin Arises from formal position. Arises from delegated authority.
Flows downward from superior to Flows upward from subordinate to

Flow
subordinate. superior
44
31.State any two differences between authority and accountability. ( 2 Marks )
Answer:
Differences between authority and accountability:
Basis Authority Accountability
It is answerable for the outcome of the assigned

Meaning It is right to command.
task.
Delegation Can be delegated. Cannot be delegated at all.
Origin Arises from formal position. Arises from responsibility.
Flows downward from superior to

Flow Flows upwards from subordinate to superior.
subordinate.
32.State any two differences between responsibility and accountability. ( 2 Marks )

Answer:
Basis Responsibility Accountability
It is an obligation to perform an assigned It is answerable for the outcome of the

Meaning
task. assigned task.
Delegation Cannot be entirely delegated. Cannot be delegated at all.
Origin Arises from delegated authority. Arises from responsibility.
33.What is delegation? Explain the importance of delegation. ( 8 Marks )

Answer:
Delegation refers to the downward transfer of authority from a superior to a subordinate. In other words,
Delegation is the process of transferring the required authority by a superior to his subordinate to enable
him to discharge the duty assigned to him. According to The Haimman, “Delegation of authority merely
means the granting of authority to subordinates to operate within prescribed limits.”
45
Importance of delegation:
Delegation, being the process of transferring authority from a superior to his subordinate, can lead to the
following benefits:
• Effective management: Delegation of authority enables the manager to assign the routine
work to his subordinates and thus relieves him from the heavy load of work. This helps the
manager to function more efficiently and to concentrate on more important functions.
• Employee development: Delegation contributes to employee development (i.e. development
of subordinates). Employees get more opportunities to utilise their talent. It makes them better
leaders and decision makers. It motivates them to develop themselves for higher positions.
• Motivation of employees: Delegation helps in developing the talents of the employees. It
makes employees feel encouraged and tries to improve their performance further.
• Facilitates growth: Delegation facilitates growth and expansion of an organisation by
providing trained and experienced personnel for taking up leading positions in new projects.
• Quick decision making: The subordinates need not go to the superiors on routine matters.
They are given authority to make decisions. This increases the speed of decision making.
• Basis of management hierarchy: Delegation of authority determines who has to report to
whom. It establishes superior subordinate relationships, which is the base for hierarchy of
managers.
• Better coordination: By clearly defining powers, duties & answerability related to various
departments, delegation helps in achieving coordination among various departments and
functioning of management.
34.What is Decentralisation? ( 1 or 2 Marks )

Answer:
Decentralisation refers to delegation of authority throughout all the levels of an organisation.
OR
Decentralisation of authority means dispersal of decision making authority among more persons in the
lower levels of management.
35.What is centralisation? ( 1 or 2 Marks )

Answer:
The concentration of decision making authority with the top management is called centralization.
36.When can one say that an organisation is centralised? ( 1 Mark )

Answer:
One can say that an organisation is centralised when decision making authority is retained by higher
management levels.
37.Distinguish between centralization and decentralization. ( 2 Marks )

Answer:
Centralisation Decentralisation
The decision-making authority is

The decision-making authority is delegated to lower levels of
retained by higher management levels. management.
46
There is no delegation of authority There is delegation of authority.
Generally found in small Found in case of large organisations.

organisations.
38.What is decentralisation? Explain its importance. (8 Marks)

Answer:
Decentralisation refers to delegation of authority throughout all the levels of an organisation.
OR
Decentralisation of authority means dispersal of decision-making authority among more persons in the
lower levels of management.
Importance of Decentralisation:
Decentralisation is a philosophy that propagates the belief that people are competent, capable and
resourceful.
Following points will highlight the importance of decentralisation:
(1) Develops initiative among subordinates: Decentralisation encourages subordinates to develop
initiative to take their own decisions and to develop solutions for the various problems they encounter. It
helps to promote self-reliance and confidence amongst the subordinates. It also helps to identify those
executives who have the necessary potential to become dynamic leaders.
(2) Develops managerial talent for the future: Decentralisation gives the subordinates a chance to prove
their abilities. In turn, it helps to develop a qualified team of subordinates who can be considered to fill
up more challenging managerial positions through promotions.
(3) Quick decision making: By giving authority for decision making to the lower levels, decentralisation
facilitates quick decisions. Thus, it enables an enterprise to adapt to dynamic operating conditions.
(4) Relief to top management: Decentralisation relieves the top executives from routine work (such as
direct supervision over the activities of a subordinate) and enables them to concentrate on more important
functions such as corporate planning, control and coordination.
(5) Facilitates growth: Decentralisation provides greater freedom to the lower levels of management as
well as divisional or departmental managers. To prove their abilities, each of these managers tries to do
better than the other. This results in higher productivity and growth of an organisation.
(6) Better control: Decentralisation makes it possible to evaluate performance at each level and the
departments can be individually held accountable for their results. As a result of decentralisation, better
control systems like management information systems are being evolved.
39.State any two differences between delegation and decentralization. ( 2 Marks )

Answer:
Difference between delegation and decentralisation:
Basis Delegation Decentralisation
It is a compulsory act because no

It is an optional policy decision. It is done at
Nature individual can perform all tasks on his
the discretion of the top management.
own.
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It has narrow scope as it is limited to
It has wide scope as it implies extension of
Scope superior and his immediate
delegation to the lowest level of management.
subordinate.
To increase the role of the subordinates in the

Purpose To lessen the burden of the manager.
organisation by giving them more autonomy.
Freedom
Less freedom to take own decisions Greater freedom of action.
of action
I. Multiple choice questions (1 Mark each)
1.Which of the following is not an element of delegation?

(a) Accountability
(b) Authority
(c) Responsibility
(d) Informal organisation
Answer:
(d) Informal organisation
2.A network of social relationship that arise spontaneously due to interaction at work is called:
(a) Formal organisation
(b) Informal organisation
(c) Decentralisation
(d) Delegation
Answer:
(b) Informal organisation
3.Which of the following does not follow the scalar chain

(a) Functional structure
(b) Divisional structure
(c) Formal organisation
(d) Informal organisation.
Answer:
(d) Informal organisation.
4.A tall structure has a

(a) Narrow span of management
(b) Wide span of management
(c) No span of management
(d) Less levels of management
Answer:
(a) Narrow span of management
5.Centralisation refers to
(a) Retention of decision making authority
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(b) Dispersal of decision making authority
(c) Creating divisions as profit centres
(d) Opening new centres or branches
Answer:
(a) Retention of decision making authority
6.For delegation to be effective it is essential that responsibility be accompanied with necessary

(a) Authority
(b) Manpower
(c) Incentives
(d) Promotions
Answer:
(a) Authority
7.Span of management refers to

(a) Number of managers
(b) Length of term for which a manager is appointed
(c) Number of subordinates under a superior
(d) Number of members in top management
Answer:
(c) Number of subordinates under a superior
8.The form of organisation known for giving rise to rumours is called

(a) Centralised organisation
(b) Decentralised organisation
(c) Informal organisation
(d) Formal organisation
Answer:
(c) Informal organisation
9.Grouping of activities on the basis of product lines is a part of

(a) Delegated organisation
(b) Divisional organisation
(c) Functional organisation
(d) Autonomous organisation
Answer:
10.Grouping of activities on the basis of functions is a part of

(a) Decentralised organisation
(d) Centralised organisation
Answer:
49
CHAPTER 6
STAFFING
1.What is stalling? ( 1 Mark )

Answer:
Staffing is the managerial function of filling and keeping filled the positions in the organisation structure.
In simple terms, staffing is ‘putting people to jobs’. It begins with identification of workforce
requirements, which is followed by recruitment, selection, placement, training, promotion, performance
appraisal and development of the workforce.
2.Explain the importance of staffing. ( 4 Marks )

Answer:
Staffing function of management finds the right people for the right job. The right people can take the
business to the top. Proper staffing offers the following benefits to the organisation.
• Staffing function of management helps in discovering and obtaining competent personnel for
various jobs.
• Staffing functions contribute to higher performance by putting the right person on the right
job.
• It ensures continuous survival and growth of the enterprise.
• It helps to ensure optimum utilisation of human resources by avoiding the situations of both
the excess and shortage of personnel.
• It improves job satisfaction and morale of employees through objective assessment and fair
reward for their contribution.
3.Explain the stages (or steps) in the staffing process. ( 8 Marks )

Answer:
The prime concern of the staffing function in the management process is the timely fulfilment of the
manpower requirements within an organisation. To ensure this, staffing process involves the following
stages (steps):
(1) Estimating the manpower requirements: It involves determining the number of persons and type of
persons having desired qualifications, skills and experience required for the performance of various jobs
in the organisation. For this purpose workload analysis and workforce analysis are made.
(2) Recruitment: It is the process of searching the candidates for employment and stimulating them to
apply for jobs so that the right people in the right number can be selected. For this purpose, both internal
sources (such as transfer and promotion) and external sources (such as advertisement in print and
electronic media, campus recruitment etc) of recruitment may be explored. For fresh talent and wider
choice external sources are used.
(3) Selection: Selection is the process of choosing the suitable candidates from among the job applicants
to fill various jobs in the organisation. It involves testing the ability, knowledge and skill of the
applicants through selection tests and interviews. Those who are able to successfully negotiate the test
and the interview are offered an employment contract through an appointment letter.
(4) Placement and orientation: After selection, the employee is given the charge of the job for which he
has been selected (i.e., placement). After this, the selected employee is taken around the workplace,
introduced to other employees and informed about the rules and policies of the organisation (i.e.,
orientation).
50
(5) Training and development: Training is the process by which the aptitudes, skills and abilities of
employees to
performing specific jobs are increased. Both on the job training methods such as apprenticeship training,
internship training, job rotation etc. and off the job training methods such as classroom lecture, case
studies etc. are used to train up employees.
To attract and retain talented people, organisations will offer the opportunities for career advancement to
their members by providing learning opportunities. Human resource development department will take
care of this issue.
(6) Performance appraisal: Performance appraisal involves evaluating an employee’s current and / or past
performance as against certain predetermined standards. Usually this process will include defining the
job,
appraising performance and providing feedback.
(7) Promotion and career planning: Managers need to take measures to provide promotional avenues for
their employees. They must encourage employees to grow and realise their full potential. Promotions are
an integral part of people’s careers. Promotion results in more pay, responsibility and job satisfaction.
(8) Compensation: Payment of adequate compensation or remuneration to the workers is one of the
important aspects of staffing. Workers tender their services for compensation in the form of wages or
salary and additional benefits like bonus, commission etc. A properly developed compensation system
enables an employer-to attract, obtain, retain and motivate people of required calibre (i.e., ability or talent
or capacity) and qualification in his organisation.
Thus, as a process, staffing includes acquisition, retention, development, performance appraisal,
promotion and compensation of its human resource. A well organised staffing process results in quality
staff-the real assets of the organisation.
4.State any one stage of the staffing process. ( 1 Mark )

Answer:
• Estimating the manpower requirements.

• Recruitment
• Selection
5.What is placement? ( 2 Marks )

Answer:
Placement refers to the employee occupying the position or post for which he / she has been selected.
6.What is orientation? ( 2 Marks )

Answer:
Orientation is introducing the selected employee to other employees and familiarising him / her with the
rules and policies of the organisation.
7.What is recruitment? ( 1 Mark )

Answer:
Recruitment refers to the process of finding possible candidates for a job or a function.
OR
Recruitment is the process of searching for prospective employees and stimulating them to apply for jobs
in an organisation.
8.Explain the internal sources of recruitment. ( 4 Marks )

Answer:
There are two important internal sources of recruitment.
They are:
• Transfers
51
• Promotions
(1) Transfers: It involves shifting of an employee from one job to another or from one department to
another, without a substantive change in his status, responsibility and salary. Transfer is a good source of
filling the vacancies with employees from overstaffed departments. It is practically a horizontal
movement of employees. Shortage of suitable personnel in one branch may be filled through transfer
from other branch or department. At the time of transfer, it should be ensured that the employee to be
transferred to another job is capable of performing it.
(2) Promotions: Business enterprises generally follow the practice of filling higher jobs by promoting
employees from lower jobs. Promotion leads to shifting an employee to a higher position, carrying higher
responsibilities, facilities, status and pay. Promotion is a vertical shifting of employees. Promotion is
given on the basis of knowledge, experience and skill of an employee. Promotion helps to improve the
motivation, loyalty and satisfaction level of employees.
9.State any one internal source of recruitment. ( 1 Mark )

Answer:
• Transfers
• Promotions
(Write any one point)
10.What is transfer?
(Or)
Give the meaning of ‘transfer’ as an internal source of recruitment. ( 1 Mark )
Answer:
Transfer refers to shifting of an employee from one job to another or from one department to another,
without a substantive change in his status, responsibility and pay.
11.What is promotion?
Answer:
Promotion refers to shifting an employee to a higher position, carrying higher responsibilities, facilities,
status and pay.
12.State any one merit of internal sources of recruitment. ( 1 Mark )

Answer:
Merits of internal sources:
• Employees are motivated to improve their performance.

• It simplifies the process of selection and placement.
• Filling jobs internally is cheaper.
13.State any one limitation (i.e., demerit) of internal sources of recruitment. ( 1 Mark )
Answer:
Limitations of internal sources:
• It reduces the scope for induction of fresh talent.

• A new enterprise cannot use internal sources of recruitment.
• Frequent transfer of employees may reduce productivity.
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• The spirit of competition among the employees may be hampered.
14.Explain the external sources of recruitment. ( 8 Marks )

Answer:
External recruitment provides wide choice and brings new blood in the organisation. The commonly used
‘external sources of recruitment are:
(1) Direct recruitment: Under the direct recruitment, a notice is placed on the notice board of the
enterprise specifying the details of the jobs available. Job seekers assemble outside the premises of the
organisation on the specified date and selection is done on the spot. The practice of direct recruitment is
followed usually for casual vacancies of unskilled or semiskilled jobs.
(2) Casual callers: Many qualified persons visit the offices of reputed companies and apply for jobs on
their own. Management preserves such unsolicited applications and the candidates may be called for an
interview, whenever the need arises.
(3) Advertisement: Advertisement of vacancies in newspapers and trade journals, is one of the popular
external sources of recruitment. The advertisements give information about the number of vacant posts,
nature of jobs, required qualifications, skills needed and remuneration offered for the jobs.
Advertisement brings response from many suitable candidates and gives the management a wider range
of candidates for selection.
(4) Employment Exchanges: Employment exchanges run by the government are an important source of
recruitment of personnel for unskilled and skilled operative jobs. Job seekers register their names with
the employment exchanges. The employment exchanges supply the names of suitable persons to the
business enterprises when there is a requisition from them.
(5) Placement Agencies and management consultants: Placement agencies are private agencies which
collect bio-data of a large number of candidates and recommend suitable candidates to the business
enterprises on then- request. Management consultancy firms help the organisations to recruit technical,
professional and managerial personnel. They specialise in middle level and top level executive
placements.
(6) Campus recruitment (Educational institutions): Universities, colleges and institutes of management
and technology are a popular source of recruitment for technical, professional and managerial jobs. These
institutions offer an opportunity to the business enterprises to conduct interviews of the qualified students
for various jobs in their campus, i.e., campus recruitment.
(7) Recommendations of employee: Applications introduced by present employees or their friends and
relatives may also prove to be a good source of recruitment.
(8) Labour contractors: Labour contractors are generally employees of the organisation, who maintain
close contacts with labourers and can provide the required number of unskilled workers at short notice.
(9) Advertising on television: Telecasting of vacant posts over television is a widely used source of
recruitment these days. Information about the number of vacant posts, required qualifications, job
description and remuneration offered etc. is given in these advertisements. Generally, this type of
telecasting is popular in big cities.
(10) Web publishing: The Internet is becoming a common source of recruitment these days. There are
certain websites which are specifically meant for providing information about both job seekers and jobs
available. Websites such as www.naukri.com, www.jobstreet.com etc. are very commonly visited by job
seekers and the organisations searching for suitable people.
Conclusion: Thus, different external sources are available for recruitment of staff. The management must
select an appropriate source for recruiting its staff.
15.Briefly explain any four external sources of recruitment. ( 4 Marks )

Answer:
(1) Direct recruitment: Under the direct recruitment, a notice is placed on the notice board of the
enterprise specifying the details of the jobs available. Job seekers assemble outside the premises of the
organisation on the specified date and selection is done on the spot. The practice of direct recruitment is
followed usually for casual vacancies of unskilled or semiskilled jobs.
53
(2) Casual callers: Many qualified persons visit the offices of reputed companies and apply for jobs on
their own. Management preserves such unsolicited applications and the candidates may be called for
interview, whenever the need arises.
(3) Advertisement: Advertisement of vacancies in newspapers and trade journals, is one of the popular
external sources of recruitment. The advertisements give information about the number of vacant posts,
nature of jobs, required qualifications, skills needed and remuneration offered for the jobs.
Advertisement brings response from many suitable candidates and gives the management a wider range
of candidates for selection.
(4) Employment Exchanges: Employment exchanges run by the government are an important source of
recruitment of personnel for unskilled and skilled operative jobs. Job seekers register their names with
the employment exchanges. The employment exchanges supply the names of suitable persons to the
business enterprises when there is a requisition from them.
16.State any one external source of recruitment. ( 1 Mark )

Answer:
• Advertisement
• Employment exchanges
• Campus recruitment
• Placement agencies and management consultants.
17.State any one merit (or advantage) of external source of recruitment. ( 1 Mark )
Answer:
Merits of external sources of recruitment:
• Qualified personnel: It helps the management to attract qualified and trained people.
• Wider choice: Management gets wider choice while selecting the people for employment.
• Fresh talent: It helps to bring new blood with fresh talent.
• Competitive spirit: It makes the present employees work hard to compete with the outsiders.
18.State any one limitation (or demerit) of external source of recruitment. ( 1 Mark )
Answer:
Limitations of external sources of recruitment:
• Dissatisfaction among existing staff: It may lead to dissatisfaction and frustration among
existing employees since chances of promotion are reduced.
• Lengthy process: It takes a long time to initiate the selection process.
• Costly process: Giving advertisement and processing of applications is a costly process.
19.What is campus recruitment? ( 1 Mark )

Answer:
Recruitment of personnel from the campus of various educational institutions is called campus
recruitment
20.As a HR manager, list out any ten sources of recruitment to fill in the vacancies in your organisation. (
5 Marks )
Answer:
54
As a HR manager of an organisation, to fill the vacancies, I would look into the following sources of
recruitment.
I. Internal Sources
• Transfers
• Promotions
II. External sources
• Direct recruitment
• Casual callers
• Advertisement
• Employment exchange
• Placement agencies and management consultants.
• Campus recruitment (Educational institutions)
• Recommendations of employees
• Labour contractors
• Advertising on television
• Web-publishing
21.Give the meaning of selection.

Answer:
Selection is the process of choosing the best person from among the job applicants for a job.
It is the process of selecting the best and eliminating the rest.
OR
According to Dale Yoder, “selection is the process of choosing from among the candidates from within
the organisation or from the outside, the most suitable person for the current position or for the future
position”.
22.Describe the steps involved in selection process,

(or)
Explain the procedure for selection of employees. ( 8 Marks )
Answer:
Selection is the process of choosing the best person from among the job applicants. It is said that
“selection is the process of elimination”. The important steps in the process of selection are:
(1) Preliminary screening: First, the applications received from the job applicants are examined. The
examination (or screening) of applications helps to ascertain whether the candidate fulfils the minimum
eligibility conditions or not. The purpose of screening is to prepare a list of eligible candidates who are to
be evaluated ( further. Through this process, unqualified candidates are eliminated.
(2) Selection tests: After screening the applications, eligible candidates are asked to appear for selection
tests. Selection tests are tests made to discover and measure the intelligence, skill and ability of the
candidates. Passing the test will make the candidate eligible for further consideration.
The following tests are usually conducted for selection of employees:
• Intelligence tests
• Aptitude test
• Trade test (Proficiency test)
• Personality tests
• Interest tests.
55
(3) Employment interview: Those candidates who were qualified in the selection tests are called for an
interview. Interview is a formal, in-depth conversation conducted to evaluate the candidate’s suitability
for the job. The role of the interviewer is to seek information and that of the interviewee is to provide the
same. It helps the employer to evaluate the candidate regarding his / her personality, smartness,
intelligence, attitude etc. Those candidates who come out successfully in the interview are considered
further.
(4) Reference and background checks: The employer tries to verify information and check the
background of applicants. This helps to know the additional information such as character, honesty,
loyalty and such other qualities of candidates. For this purpose, information may be obtained and verified
from the heads of educational institutions where the candidates have studied or from reference or from
their previous employers.
(5) Selection decision: After clearing all the tests, interviews and reference checks, the right candidate
will be selected for the job. The final decision to select the candidate is taken after getting the opinion of
the concerned manager of the department where the selected candidate has to work.
(6) Medical examination: After the selection decision, but before the job offer is made, the candidate is
required to undergo a medical fitness test. The job offer is given only to those candidates who are
declared physically fit for the job.
(7) Job offer (Issue of appointment letter): Candidates finally selected are issued a formal appointment
order by the organisation. It is a job offer and contains the details like nature of the job, the remuneration,
pay scale, a date by which the candidate must report on duty and other terms and conditions relating to
employment.
(8) Contract of employment (Acceptance of job offer): If the selected candidate decides to join the
organisation, he has to report to the concerned authority and formally join the organisation by giving his
consent (acceptance) in writing. After this, certain documents (the attestation form and a contract of
employment) need to be executed by the employer and the candidate.
Thus, starting from preliminary screening till the job offer, in each step of a selection process, every
effort is made to eliminate some of the candidates in order to select the best persons. Therefore, it is
rightly remarked that selection is the process of elimination.
23.Mention the first step in the selection process. ( 1 Mark )

Answer:
Preliminary screening is the first step in the selection process.
24.Explain any four types of tests used for selection of employees.

(OR)
Explain the different types of selection tests. ( 4 Marks )
Answer:
Selection tests are tests which attempt to measure certain characteristics of individuals.
Important tests used for selection of employees
• Intelligence tests: It is a psychological test which is used to measure the level of intelligence
quotient (I.Q.) of an individual. It is an indicator of a person's learning ability or the ability to make
decisions and judgements.
• Aptitude test: It is a test which tries to measure an individual's potential for learning new
skills. It indicates a person’s capacity to develop in the future.
• Personality tests: Personality tests are the tests which discover and measure the overall
qualities of a person such as emotional reaction, maturity levels, confidence, courage etc.
• Trade test (Proficiency tests): These tests measure the existing skills of an individual. They
measure the level of knowledge and proficiency in the area of professions or technical training.
• Interest tests: Interest tests are the tests used to know the pattern of interests or involvement of
a person in a particular kind of work. These tests suggest the nature of a job liked by a candidate which
56
may bring him job satisfaction.
25.State any one type of selection tests. ( 1 Mark )

Answer:
• Intelligence tests
• Interest tests
• Personality tests
26.What is meant by ‘Interview’ in the selection process? ( 1 Mark )

Answer:
Interview is a formal, in depth conversation conducted to evaluate the applicant’s suitability for the job.
27.What is training? ( 1 Mark )

Answer:
Training is any process by which the aptitudes, skills and abilities of employees to perform specific jobs
are increased.
28.What is the meaning of ‘Development’ in the staffing process? ( 1 Mark )

Answer:
Development refers to the learning opportunities designed to help employees grow.
OR
Development means growth of individuals in all respects.
29.State any one difference between training and development. ( 1 Mark )

Answer:
Training Development
It is a process of increasing knowledge

1. It is a process of learning and growth.
and skill.
It is to enable the employee to do the job

2. It is to enable the overall growth of the employee.
better.
3. It is a job-oriented process. 3. It is a career-oriented process.
30.Explain the benefits of training and development to the organisation and to the employees. ( 8 Marks )
Answer:
Training and Development, being an attempt to improve the current or future employee performance by
increasing employees ability to perform through learning, offers the following benefits:
57
I. Benefits of training and development to an organisation are:
• Training is a systematic learning, always better than hit and trial methods.
• It enhances employee productivity both in terms of quantity and quality, leading to higher
profits.
• Training equips the future manager who can take over in case of emergency.
• Training increases employee satisfaction and morale and reduces absenteeism and employee
turnover.
• It helps in obtaining effective response from employees to the fast changing environment –
technological and economic.
• A well trained employee needs less supervision. This results in reduced cost of supervision.
II. Benefits to the employees.
• Improved skills and knowledge due to training lead to better careers for the individual.
• Increased performance by an individual helps him to earn more.
• Training makes the employee more efficient to handle machines. Thus, it reduces the chances
of industrial accidents.
• Training increases the satisfaction and morale of employees.
31.How does training and development of employees benefit the organisations? ( 4 Marks )
Answer:
Benefits of training and development to an organisation are:
• Training is a systematic learning, always better than hit and trial methods.
• It enhances employee productivity both in terms of quantity and quality, leading to higher
profits.
• Training equips the future manager who can take over in case of emergency.
• Training increases employee satisfaction and morale and reduces absenteeism and employee
turnover.
• It helps in obtaining effective response from employees to the fast changing environment –
technological and economic.
• A well trained employee needs less supervision. This results in reduced cost of supervision.
32.Explain the four methods of on the job training and any four methods of off the job training. ( 8 Marks
)
Answer:
Training is any process by which the aptitudes, skills and abilities of employees to perform specific jobs
are increased. There are various methods of training, they are:
I. On the job training methods: (Where workers learn by doing the work under the guidance and
supervision of superiors).
(1) Apprenticeship programmes: Apprenticeship or ‘Understudy’ is a method of training under which the
trainee is required to work under the supervision and guidance of a master worker (an expert) for a
specified period of time. This method helps the employees to know about the complications and
complexities of the job. This type of training is commonly used to train up employees like electricians,
plumbers, iron workers or carpenters who require a higher level of skill.
(2) Coaching: Under this method, the superior guides and instructs the trainees (employees) as a coach.
The superior familiarises the employee with the methods of using the equipment, tools and materials.
This helps the learner to pick up the skill and speed in work. The coach or counsellor (i.e., superior) sets
58
goals and suggests how to achieve these goals. He also reviews the work and provides regular feedback
to the trainee on his performance and offers him suggestions for improvement.
(3) Internship training: It is a joint programme of training in which educational institutions and business
firms cooperate. Under this internship training, professional institutes send their students to big industrial
or business enterprises to gain practical work experience. E.g. Engineering students may be sent to
industrial enterprises from time to time to gain practical work experience. Internship training is common
in medical, engineering, management, auditing and legal professions.
(4) Job-Rotation: Job rotation is a method of training which involves rotation (or movement or shifting)
of the employee (trainee) from one department to another or from one job to another so that he may learn
the working of various departments or jobs. Under this method, the trainee gets a chance to test his/her
own aptitude and abilities. It allows trainees to interact with other employees.
(Write all the four points)
II. Off the job training methods (where training is provided away from the actual work place):
The following are the important methods of the off-the-job training:
(1) Classroom Lecture Conferences: Under this method, trainees are given training in the form of lectures
in a classroom. Sometimes audio visuals and demonstrations are also used to make the classroom
presentation more interesting. This method is used effectively for the purpose of teaching administrative
aspects to managerial executives in the organisation. Managers are informed about the rules, procedures,
methods and techniques for tackling different problems.
(2) Films: They can provide information and explicitly demonstrate skills that are not easily represented
by the other techniques. It is a very effective method of training in certain cases.
(3) Case study: Case study is a written description of an actual situation (real problems that managers
have faced) in the past in the same organisation or somewhere else and trainees have to study and analyse
the case and give their conclusions. Case is later discussed by the instructor with all the merits and
demerits of each option. The aim of this method is to develop the decision-making abilities of the
employees.
(4) Computer modelling: Computer simulation modelling is the technique of representing the real-world
situation by a computer programme. It allows learning in an artificial environment without the risk of
damage to machines or equipment.
(5) Vestibule training: This is a method of training which is used mostly to train up technical staff and
office employees who deal with sophisticated equipment, tools and machines. The training is given away
from the work place by duplicating the actual working conditions and by giving similar materials and
equipment.
(6) Programmed instruction: Under this method some useful information is broken into meaningful units
and these units are arranged in a proper way to form a logical and sequential learning package, i.e., from
simple to complex. The trainee goes through these units by answering questions or filling the blanks and
thus acquires some specific skills or general knowledge.
Thus, different methods are available to train up the employees. Management can select a suitable
method to give training to employees.
33.Explain the different methods of on-the-job training. ( 4 Marks )

Answer:
(1) Apprenticeship programmes: Apprenticeship or ‘Understudy’ is a method of training under which the
trainee is required to work under the supervision and guidance of a master worker (an expert) for a
specified period of time. This method helps the employees to know about the complications and
complexities of the job. This type of training is commonly used to train up employees like electricians,
plumbers, iron workers or carpenters who require a higher level of skill.
(2) Coaching: Under this method, the superior guides and instructs the trainees (employees) as a coach.
The superior familiarises the employee with the methods of using the equipment, tools and materials.
This helps the learner to pick up the skill and speed in work. The coach or counsellor (i.e., superior) sets
59
goals and suggests how to achieve these goals. He also reviews the work and provides regular feedback
to the trainee on his performance and offers him suggestions for improvement.
(3) Internship training: It is a joint programme of training in which educational institutions and business
firms cooperate. Under this internship training, professional institutes send their students to big industrial
or business enterprises to gain practical work experience. E.g. Engineering students may be sent to
industrial enterprises from time to time to gain practical work experience. Internship training is common
in medical, engineering, management, auditing and legal professions.
(4) Job-Rotation: Job rotation is a method of training which involves rotation (or movement or shifting)
of the employee (trainee) from one department to another or from one job to another so that he may learn
the working of various departments or jobs. Under this method, the trainee gets a chance to test his/her
own aptitude and abilities. It allows trainees to interact with other employees.
34.Explain any four methods of off the job training. ( 4 Marks )

Answer:
(1) Films: They can provide information and explicitly demonstrate skills that are not easily represented
by the other techniques. It is a very effective method of training in certain cases.
(2) Case study: Case study is a written description of an actual situation (real problems that managers
have faced) in the past in the same organisation or somewhere else and trainees have to study and analyse
the case and give their conclusions. Case is later discussed by the instructor with all the merits and
demerits of each option. The aim of this method is to develop the decision-making abilities of the
employees.
(3) Computer modelling: Computer simulation modelling is the technique of representing the real-world
situation by a computer programme. It allows learning in an artificial environment without the risk of
damage to machines or equipment.
(4) Vestibule training: This is a method of training which is used mostly to train up technical staff and
office employees who deal with sophisticated equipment, tools and machines. The training is given away
from the work place by duplicating the actual working conditions and by giving similar materials and
equipment.
35.State any one method of on-the-job training. ( 1 Mark )

Answer:
Methods of on the job training:
• Apprenticeship programmes
• Coaching
• Internship training
• Job rotation
36.Name on the job training method used to train up plumbers, electricians or iron workers. ( 1 Mark )
Ans: Apprenticeship programmes
37.State any one method of off the job training. ( 1 Mark )

Answer:
Off the job training methods
• Classroom lectures / Conferences

• Case study
• Computer modelling
• Vestibule training
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38.State the off the job training method used to train up employees before handling sophisticated
machinery and equipment. (1 Mark )
Answer:
Vestibule training
39.What is job rotation?
Answer:
Job rotation refers to shifting the trainee from one department to another or from one job to another. It is
one of the methods of on-the-job training.
I Multiple choice questions (1 Mark each)
1.Which one of the following is not a function of staffing

(a) Recruitment
(b) Training
(c) Compensation
(d) Directing
Answer:
(d) Directing
2.Which one of the following is an internal source of recruitment

(a) Transfer
(b) Employment exchange
(c) Advertisement
(d) Campus recruitment
Answer:
(a) Transfer
3.Promotion of employees results in

(a) Increase in pay
(b) Increase in responsibility
(c) increase in job satisfaction
(d) All of the above
Answer:
4.Which of the following is On-the-job method of training?

(a) Case study
(b) Coaching
(c) Vestibule training
(d) Computer modelling
Answer:
(b) Coaching
5.Which of the following is off the job method of training?

(a) apprentice programmes
(b) Internship training
(c) Case study
(d) Job rotation
Answer:
(c) Case study
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CHAPTER 7
DIRECTING
1.What is directing? (1 or 2 marks)

Answer:
• Directing refers to the process of instructing, guiding, counselling, motivating and leading
people in the organisation to achieve its objectives.
• In simple terms, Directing means giving instructions and guiding people in doing work.
• It is one of the key managerial functions performed by every manager.
2.State any two characteristics of the directing function of management. ( 2 Marks )

Answer:
Characteristics of Directing:
• Directing initiates’ action: Directing is a key managerial function which initiates action in the
organisation.
• Directing takes place at every level of management: Every manager from top executive to
supervisor performs the function of directing.
• Directing is a continuous process: Directing is a continuous activity. It takes place throughout
the life of the organisation.
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• Directing flows from top to bottom: Directing is first initiated at top level and flows to the
bottom through organisational hierarchy.
3.State any two importance of directing. ( 2 Marks )

Answer:
Importance of directing
• Directing helps to initiate action by people in the organisation towards attainment of desired
objectives.
• Directing ensures that the individuals work for organisational goals.
• Directing guides employees to fully realise their potential and capabilities by motivating and
providing effective leadership.
• Directing facilitates introduction of needed changes in the organisation.
• Effective directing helps to bring stability and balance in organisation.
4.Explain the principles of Directing. ( 8 Marks )

Answer:
Principles of Directing:
Following are certain guiding principles of directing which help the managers in directing process:
(1) Maximum individual contribution: This principle emphasises that directing techniques must help
every individual in the organisation to contribute to his maximum potential for achievement of
organisational objectives. It should bring out untapped energies of employees for the efficiency of the
organisation. For this purpose management may have a good motivation plan with suitable monetary and
non-monetary rewards.
(2) Harmony of objectives: Good directing should provide harmony of individual objectives of
employees and the organisational objectives. This can be ensured by convincing that employee rewards
and work efficiency are complementary to each other.
(3) Unity of command: This principle insists that a person in the organisation should receive instructions
from one superior only. Adherence to this principle ensures effective direction.
(4) Appropriateness of direction techniques: According to this principle, depending upon situations,
appropriate motivational and leadership techniques should be used while directing the people. For
example, for some people money can act as a powerful motivator while for others promotion may act as
an effective motivator.
(5) Managerial communication: Effective managerial communication across all the levels in the
organisation makes direction effective. Directing should convey clear instructions to create total
understanding to subordinates. Through proper feedback, the manager should ensure that the subordinate
understands his instructions clearly.
(6) Use of informal organisation: A manager should identify the informal groups or organisations present
in the enterprise and make use of such organisations for effective directing.
(7) Leadership: While directing the subordinates, managers should exercise good leadership as it can
influence the subordinates positively without causing dissatisfaction among them.
(8) Follow through: Mere giving of an order is not sufficient. Managers should follow it up by reviewing
continuously whether orders are being implemented accordingly or any problems are being encountered.
If necessary, suitable modifications should be made in the directions.
While directing, a manager has to follow these principles to make the directing process effective. This
helps him to deal with people of diverse backgrounds and expectations with ease and comfort.
5.State any one element of directing. ( 1 Mark )

Answer:
Elements of direction:
63
• Supervision
• Motivation
• Leadership
• Communication
6.What do you understand by supervision? ( 2 Marks )

Answer:
Supervision is an element of direction. It is a process as well as a function performed by a supervisor.
Supervision is the process of guiding the efforts of employees and other resources to accomplish the
desired objectives. It means overseeing what is being done by subordinates and giving instructions to
ensure optimum utilisation of resources and achievement of work targets.
7.What is supervision? Explain the role played by a supervisor,
(or)
What is Supervision? Explain the importance of supervision. ( 8 Marks )
Answer:
Supervision is an element of direction. It is a process as well as a function performed by a supervisor.
Supervision is the process of guiding the efforts of employees and other resources to accomplish the
desired objectives. It means overseeing what is being done by subordinates and giving instructions to
ensure optimum utilisation of resources and achievement of work targets.
Importance of supervision (or role played by a supervisor):
Supervision, being a process and a function performed by supervisor, plays an important role in the
success of any organisation (as he has direct contact with workers)
• Supervisor maintains friendly relations with workers. A good supervisor acts as a guide,
friend and philosopher to the workers.
• Supervisor acts as a link between workers and management: He conveys the objectives, ideas
and plans of the management to the workers and workers problems to the management. This
helps to avoid misunderstandings and conflicts between management and workers /
employees.
• Supervisor plays a key role in maintaining group unity among workers placed under his
control. He sorts out internal differences and maintains harmony among workers.
• Supervisor ensures performance of work according to the targets set. He takes responsibility
for task achievement and motivates his workers effectively. Motivated workers perform the
tasks assigned to them efficiently and effectively.
• Supervisor provides good on the job training to the workers / employees: A skilled and
knowledgeable supervisor can build an efficient team of workers.
• Supervisory leadership plays a key role in influencing the workers in the organisation. A
supervisor with good leadership qualities can build up high morale among workers.
• A good supervisor analyses the work performed and gives feedback to the workers. He
suggests ways and means of developing work skills.
8.Give the meaning of motivation. ( 2 Mark )

Answer:
Motivation is the process of making subordinates to act in a desired manner to achieve certain
organisational goals, (or) Motivation is the process of stimulating (or inducing) people to action to
accomplish desired goals. In simple terms, motivation is an inducement to act.
OR
Motivation is the process which converts employees' ability to work into their willingness to work by
offering them incentives and inspiring them to work hard.
9.Define motivation. ( 2 Marks )

Answer:
64
According to William G. Scout, “Motivation means a process of stimulating people to action to
accomplish desired goals.”
10.What is a motive? ( 1 Mark )

Answer:
A motive is an inner state that energises, activates or moves and directs behaviour towards goals.
11.What is Motivator? ( 1 Mark )
Answer:
Motivator is the technique used to motivate people in an organisation. E.g. pay, bonus, promotion etc.
12.State any two features of motivation. ( 2 Marks )

Answer:
Features of motivation:
• Motivation is an internal feeling: The urge, drives, desires, aspirations, striving or needs of
human beings which are internal, influence human behaviour. [For example, people may have
the urge or desire for possessing a car or a comfortable house. These urges are internal to an
individual]
• Motivation produces goal directed behaviour.
• Motivation is a complex process as the individuals differ in their expectations, perceptions
and reactions, e.g A particular type of motivation may not have a uniform effect on all the
members.
• Motivation can be either positive or negative: Positive motivation provides positive rewards
like increase in pay, promotion etc. Negative motivation uses.negative means like
punishment, stopping increments etc., which may also induce a person to act in the desired
way.
13.State any two benefits of motivation. ( 2 Marks )

Answer:
Benefits (or importance) of motivation :
• Motivation helps to improve performance levels of employees as well as the organisation

(This is because motivated employees contribute their maximum efforts for organisational
goals).
• Motivation helps to change negative or indifferent attitudes of employees to positive attitudes
so as to achieve organisational goals.
• Motivation helps to reduce employee turnover and thereby saves the cost of new recruitment
and training. It also helps to retain talented people in the organisation.
• Motivation helps to reduce absenteeism in the organisation.
• Motivation helps managers to introduce changes smoothly without much resistance from
people.
14.What is motivation? Explain Maslow’s Need Hierarchy theory of motivation. ( 8 Marks )

Answer:
Motivation is the process of making subordinates to act in a desired manner to achieve certain
organisational goals, (or) Motivation is the process of stimulating (or inducing) people to action to
accomplish desired goals.
In simple terms, motivation is an inducement to act.
OR
65
Motivation is the process which converts employees' ability to work into their willingness to work by
offering them incentives and inspiring them to work hard.
Maslow’s need Hierarchy theory of Motivation:
Abraham Maslow, a U.S. Psychologist, developed a theory of motivation (in 1943) based on human
needs. He felt that within every human being, there exists a hierarchy of five needs. They are:
• Basic physiological needs: These needs include need for food (to satisfy hunger), clothing,
shelter, sleep etc. These are the most basic human needs. These needs are to be satisfied by
everyone in the first instance. In the organisational context, basic salary helps to satisfy these
needs.
• Safety / security needs: These needs provide security and protection from physical and
emotional harm. Examples: Job security, stability of income etc. For an individual, these
needs arise only when he / she is reasonably satisfied with physiological needs.
• Affiliation / Belonging needs: These needs include individuals desire for affection, sense of
belongingness and friendship. They become important only when physiological and safety
needs are satisfied.
• Esteem needs: These needs include factors such as self-respect, autonomy status, recognition
and attention. Once, the first three levels of needs are reasonably well satisfied, a person
thinks of esteem needs.
• Self-actualization needs: These needs include growth, self-fulfilment and achievement of
goals. Thus, it is concerned with the drive to become what one is capable of becoming. It is
the highest level of need in the hierarchy.
Thus, Maslow’s theory focuses on the needs as the basis for motivation. This theory is widely recognized
and appreciated. The theory is still relevant because it helps the managers to realise that the need level of
the employee should be identified to provide motivation to them.
15.State any one assumption of Maslow’s need Hierarchy theory of motivation. ( 1 Mark )
Answer:
Maslow’s need Hierarchy theory of motivation is based on the following assumptions:
• People’s behaviour is based on their needs. Satisfaction of such needs influences their
behaviour.
• People’s needs are in hierarchical order, starting from basic needs to other higher level needs.
• A satisfied need can no longer motivate a person; only the next higher level need can
motivate him.
• A person moves to the next higher level of the hierarchy only when the lower level need is
satisfied.
16.Name the theory evolved by Abraham Maslow. ( 1 Mark )

Answer:
Maslow’s Need Hierarchy theory of motivation.
17.Name any one human need as stated by Abraham Maslow. ( 1 Mark )
Answer:
1. Basic physiological needs

2. Safety / security needs
3. Esteem needs
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18.Draw the neat diagram of Maslow’s need Hierarchy theory (Triangular diagram)
Answer:
Diagram showing Maslow’s need Hierarchy theory.
19.Explain any four financial incentives and any four non-financial incentives used to motivate
employees of a company. ( 8 Marks )
Answer:
Incentive means all measures which are used to motivate people (i.e., employees) to improve
performance. These incentives may be:
I. Financial Incentives: Financial Incentives are the incentives which are in direct monetary form and
serve to motivate people for better performance. The financial incentives generally used to motivate
employees in a company are:
(1) Pay and allowances: Generally, all the enterprises give pay and allowances to their employees. Pay
and allowances include – basic pay, dearness allowance, house rent allowance and other allowances
which are paid in monetary form. Salary system consists of regular increments in pay every year and
enhancement of allowances from time to time. For every employee, salary is the basic monetary
incentive.
(2) Productivity linked wage incentives: Linking wages to productivity of individuals or production
groups is another form of incentive used to motivate employees. The individual or group which increases
productivity will get more wages and this acts as a motivating factor.
(3) Bonus: Based on profit, employees may be given a bonus. Bonus is the incentive offered over and
above wages/ salary to the employees. To get bonuses, employees are motivated to improve their
performance.
(4) Profit sharing: Companies may share their profit with the employees. This will motivate the
employees to improve their performance and contribute to increase in profits.
(5) Co-partnership / stock option: Under these incentive schemes, employees are offered shares of a
company at a set price which is lower than market price. The allotment of shares creates a feeling of
ownership to the employees and makes them contribute to the growth of the organisation.
(6) Retirement benefits: Several retirement benefits such as provident fund, pension and gratuity offered
to the employees also acts as an incentive to motivate them.
(7) Perquisites: In many companies perquisites and fringe benefits such as use of the company’s car,
provision of rent free accommodation, provision of free medical facilities and free education to children
are offered over and above the salary. These perquisites help to provide motivation to the employees.
(Write any four points).
II. Non-financial incentives: Non-financial incentives focus on providing psychological and emotional
satisfaction to employees. Some of the important non-financial incentives are:
67
(1) Status: Company can motivate its employees by raising their status. Status means ranking of positions
in the organisation. When a company gives more authority, responsibility, rewards, recognition,
perquisites and prestige of a job, it raises the status of an individual and motivates him / her to improve
the performance.
(2) Organisational climate: Managers may take positive measures regarding organisational climate /
characteristics such as granting individual autonomy to employees, giving consideration to employees'
reasonable requests, which helps in motivating employees to perform better.
(3) Career advancement opportunity: Providing opportunity to employees to improve their skills and
giving them promotion to higher level jobs also acts as a motivating factor which encourages employees
to exhibit improved performance. Appropriate skill development programmes and sound promotion
policy will help in this regard.
(4) Job enrichment: Jobs can be enriched to motivate employees to work hard for better performance.
Jobs can be enriched by designing jobs that include greater variety of work content, by giving workers
more autonomy and responsibility and by providing the opportunity for personal growth and a
meaningful work experience.
(5) Employee recognition programmes: Employee recognition programmes (a show of appreciation) such
has congratulating the employee for good performance, displaying the achievement of the employee on
the notice board, installing award or certificate for best performance, distributing mementos and T-shirts
and rewarding an employee for giving valuable suggestions will make employees feel motivated to
perform at a higher level.
(6) Job security: Providing job security to employees is another non-financial incentive that can be
offered by a company to motivate them to work hard with greater zeal.
(7) Employee participation: Employees can also be motivated to work better by involving them in
decision making of the issues related to them.
(8) Employee empowerment: Empowering employees by giving more autonomy and powers is yet
another way of motivating employees to use their skills and talents positively in the job performance.
Thus, both financial incentives like salary, wages, bonus etc. and non-financial incentives like status,
promotion opportunity, job enrichment, job security etc. will influence employees behaviour and
motivate them to better their performance.
20.What is leadership? ( 2 Marks )

Answer:
Leadership is the process of influencing the behaviour of people by making them strive voluntarily
towards achievement of organisational goals.
21.Define leadership. ( 2 Marks )
Answer:
According to Koontz and Weihrich, “Leadership is the art or process of influencing people so that they
will strive willingly and enthusiastically towards the achievement of group goals”.
OR
According to George Terry, “Leadership is the activity of influencing people to strive willingly for group
objectives.”
22.State any two features of leadership. ( 2 Marks )

Answer:
Features of leadership:
• Leadership indicates the ability of an individual to influence others.

• Leadership is a continuous process.
• Leadership tries to bring change in the behaviour of others.
• Leadership indicates interpersonal relations between leaders and followers.
• Leadership is exercised to achieve common goals of the organisation. (Write any two points)
68
23.State any two benefits (or importance) of leadership. ( 2 Marks )
Answer:
Benefits (or importance) of leadership:
• Leadership influences the behaviour of people and makes them to positively contribute their
energies for the benefit of the organisation. Good leaders always produce good results.
• A leader maintains personal relations and helps followers in fulfilling their needs. He creates
a congenial work environment.
• Leader plays a key role in introducing required changes in the organisation.
• A leader handles conflicts effectively and does not allow adverse effects resulting from the
conflicts.
• Leader provides training to his/her subordinates.
24.Explain the qualities of a good leader. ( 8 Marks )

Answer:
A good leader can influence the behaviour of his/her subordinates positively and can take the
organisation to success. To be a good (successful) leader, a person should possess certain qualities. Some
of these qualities are:
• Physical features: Physical features like height, weight, health and appearance determine the
physical personality of an individual. A leader with good physical features can attract people.
Health and endurance help a leader to work hard which inspires others to work with the same
spirit.
• Knowledge: A good leader should have required knowledge and competence. He/she should
have knowledge about the organisation, procedure of work, products and other details. Only
such a person can instruct subordinates correctly and influence them.
• Integrity: A leader should possess a high level of integrity and honesty. He should be a role
model to others regarding ethics and values.
• Initiative: A leader should have courage and initiative. He should not wait for opportunities to
come his way, rather he should grab the opportunity and use it to the advantage of the
organisation.
• Communication skills: A leader should be a good communicator. He should have the capacity
to clearly explain his ideas and make the people understand his ideas. Also, he should be a
good listener. He should have the patience to listen to both the superiors and the subordinates.
• Motivation skills: A leader should be an effective motivator. He should understand the needs
of people and motivate them through satisfying their needs.
• Self-confidence: A leader should have a high level of self-confidence and should be able to
create confidence in his subordinates. He should not lose his confidence even in the most
difficult times.
• Decisiveness: Leader should be decisive in managing the work. Once he is convinced about a
fact, he should be firm and should not change opinions frequently.
• Social skills: A leader should be sociable and friendly with his colleagues and followers. He
should understand people and maintain good human relations with them.
All good leaders may not necessarily possess all the qualities of a good leader. But they can try to acquire
them through training and conscious efforts. A good leader can see that work is completed on time and
goals are achieved at minimum cost. Thus, a good leader can bring effectiveness and efficiency in the
organisation.
25.State any one quality of a good leader. ( 1 Mark )

Answer:
69
• Communication skills
• Self confidence
• Motivation skills
26.State any two leadership styles. ( 2 Marks )

Answer:
Leadership styles:
• Autocratic leader
• Democratic leader
• Laissez faire leader
(Write any two)
27.State any one leadership style. ( 1 Mark )

Answer:
Autocratic leader
28.What is communication? ( 2 Marks )
Answer:
Communication refers to a process of exchange of ideas, views, facts, feelings etc. between or among
people to create common understanding.
OR
Communication is the process of exchange of information between two or more persons to reach
common understanding.
29.Define communication. ( 2 Marks )

Answer:
According to Louis Allen, “Communication is the sum of all things one person does when he wants to
create understanding in the mind of another. It involves a systematic and continuous process of telling,
listening and understanding.”
OR
According to Koontz and Weihrich, “Communication is transfer of information from the sender to the
receiver with the information being understood by the receiver.”
30.State any two elements of the communication process. ( 2 Marks )

Answer:
Elements of communication process:
• Sender: Sender (i.e., source) is a person who conveys his thoughts or ideas to the receiver.
• Message: It is the content of communication such as ideas, orders, suggestions, etc.
• Encoding: It is the process of converting the message into communication symbols.
• Media: It is the path through which an encoded message is transmitted to the receiver. The
media or channel may be written from, face to face, phone call, internet etc.
• Decoding: It is the process of converting encoded symbols of the sender.
• Receiver: It is the person who receives communication from the sender.
• Feedback: It includes all those actions of receiver indicating that he has received and
understood the message of sender
• Noise: Noise means some obstruction or hindrance to communication.
31.What is communication? Explain the importance of communication. ( 8 Marks )

Answer:
70
Communication refers to a process of exchange of ideas, views, facts, feelings etc. between or among
people to create common understanding.
OR
Communication is the process of exchange of information between two or more persons to reach
common understanding.
Importance of communication: Communication is one of the most central aspects of managerial
activities. It is the foundation of all group activities. The following points will highlight the importance
of communication.
• Acts as basis of coordination: Communication acts as basis of coordination. It ensures

coordination among departments, activities and persons in the organisation by explaining
about organisational goals and the mode of their achievement.
• Helps in smooth working of an enterprise: Communication makes possible for the smooth and
unrestricted working of the enterprise. All organisational interactions depend on
communications.
• Acts as the basis of decision making: Communication provides needed information for
decision making. Only on the basis of relevant information communicated, one can take right
decision.
• Increases managerial efficiency: Communication is essential for quick and effective
performance of managerial functions. The management conveys the goals and targets, issues
instructions, allocates jobs and responsibilities and looks after the performance of
subordinates; Communication is involved in all these aspects.
• Promotes cooperation and industrial peace: The two way communication promotes
cooperation and mutual understanding between the management and workers. This leads to
industrial peace and efficient operations.
• Establishes effective leadership: Communication is the basis of leadership. Effective
communication helps to influence subordinates. While influencing people, leader should
possess good communication skills.
• Boosts morale and provides motivation: An efficient system of communication enables
management to motivate, influence and satisfy the subordinates. It also helps to boost morale
of employees and managers. It improves good human relations in industry.
From the above it is clear that an effective communication system increases managerial efficiency and
thus plays an important role in the success of any organisation.
32.What is formal communication? ( 2 marks )

Answer:
The communication which flows through official channels designed in the organisation chart is called
formal communication, i.e., a communication between a superior and subordinate whereby a superior
sends notice to subordinates to attend a meeting.
33.State any one pattern (network) of formal communication. ( 1 Mark )

Answer:
• Single chain
• Wheel
• Circular
• Free flow
• Inverted V
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34.What is informal communication? ( 2 Marks )
Answer:
Communication that takes place without following the formal lines of communication is called informal
communication. E.g., workers discussing rumours that some employees are likely to be transferred.
35.What is grapevine communication? ( 2 Marks )

Answer:
Grapevine (or informal communication) is an informal channel of business communication which takes
place without following the formal lines of communication. It spreads throughout the organisation in all
directions irrespective of authority levels. E.g. workers discussing the behaviour of the superior,
discussing rumours that some employees are likely to be transferred.
36.Name any one type of Grapevine network. ( 1 Mark )

Answer:
Types of grapevine network:
• Single strand network

• Gossip network
• Probability network
• Cluster network
37.Give the meaning of semantic barriers of communication. ( 2 Marks )

Answer:
Semantic barriers are the barriers to communication which are concerned with problems and obstructions
in the process of encoding and decoding a message into words or impressions.
38.State any two semantic barriers to communication. ( 2 Marks )

Answer:
Semantic barriers to communication
• Badly expressed message: Sometimes intended meaning may not be converged on account of
inadequate vocabulary, usage of wrong words, omission of needed words etc.
• Symbols with different meanings: Usage of a word with several meanings may create
communication barriers.
• Faulty translations by a translator may give different meaning to the communication.
• Technical Jargon (i.e., words) used by specialists may not be understood by the subordinates.
39.State any two psychological barriers to communication. ( 2 Marks )

Answer:
Psychological barriers to communication:
• Premature evaluation of message by the receiver.

• Lack of attention: non-listening of messages due to lack of attention by the receiver.
• Loss of message by transmission and poor retention of message by the receiver.
• Distrust between the sender and the receiver of the message.
72
40.State any two organisational barriers to communication. ( 2 Marks )
Answer:
Organisational barriers to communication:
• Some times, organisational policy may not be supportive to free flow of communication.
• Rigid rules and cumbersome procedures may be a hurdle to communication.
• Sometimes a status conscious manager may create a problem.
• Complexity in organisation structure may lead to delay and distortion in communication.
• Inadequate organisational facilities for free flow of communication.
41.State any two personal barriers to communication. ( 2 Marks )

Answer:
Personal barriers to communication:
• Fear of challenge to authority.

• Lack of confidence of superiority over his subordinates.
• Unwillingness to communicate
• Lack of proper incentives
42.What are the common barriers to effective communication? ( 8 Marks )

Answer:
Semantic barriers to communication
• Badly expressed message: Sometimes intended meaning may not be converged on account of
inadequate vocabulary, usage of wrong words, omission of needed words etc.
• Symbols with different meanings: Usage of a word with several meanings may create
communication barriers.
• Faulty translations by a translator may give different meaning to the communication.
• Technical Jargon (i.e., words) used by specialists may not be understood by the subordinates.
Psychological barriers to communication:
• Premature evaluation of message by the receiver.

• Lack of attention: Non-listening of messages due to lack of attention by the receiver.
• Loss of message by transmission and poor retention of message by the receiver.
• Distrust between the sender and the receiver of the message.
Organisational barriers to communication:
• Some times, organisational policy may not be supportive to free flow of communication.
• Rigid rules and cumbersome procedures may be a hurdle to communication.
• Sometimes a status conscious manager may create a problem.
• Complexity in organisation structure may lead to delay and distortion in communication.
• Inadequate organisational facilities for free flow of communication.
Personal barriers to communication:
73
• Fear of challenge to authority.
• Lack of confidence of superiority over his subordinates.
• Unwillingness to communicate
• Lack of proper incentives
43.Suggest the suitable measures to improve communication effectiveness.

(Or)
Suggest measures to overcome the barriers to effective communication. ( 8 Marks )
Answer:
Measures to overcome the barriers and improve communication effectiveness:
Following are some of the measures to overcome the barriers and improve communication effectiveness:
• Clarify the ideas before communication: The person sending the message should be very clear
in his / her mind about what he / she wants to say. The message should be stated in such a
manner that it is clearly conveyed to subordinates.
• Communicate according to the needs of the receiver: Manager should adjust his
communication according to the education and understanding levels of subordinates.
• Consult others before communicating: Before actually communicating the message, it is
better to involve others in developing a plan for communication. Participation and
involvement of subordinates may help to gain ready acceptance and willing cooperation of
subordinates.
• Be aware of languages, tone and content of message: The language used should be
understandable to the receiver and should not offend the sentiments of listeners. The tone of
the message should not hurt the feelings of the receiver. Further, the message should be brief.
It must be able to evoke response from the listeners.
• Convey things of help and value to listeners: While conveying messages to others, it is better
to know the interests and needs of the people with whom you are communicating.
• Ensure proper feedback: The communicator may ensure the success of communication by
asking questions regarding the message conveyed. The receiver of communication may also
be encouraged to respond to communication. The communication process may be improved
by the feedback received.
• Communicate for present as well as future: Communicate according to the requirements of
present as well as future needs.
• Follow up communications: There should be regular follow up and review on the instructions
given to subordinates. Such follow up measures help in removing hurdles, if any, in
implementing the instructions.
• Be a good listener: Manager should be a good listener. Patient and attentive listening solves
half of the problems.
Thus, by taking up these measures, managers can promote effective communication.

1. Which one of the following is not an element of direction?
(a) Motivation
(b) Communication
(c) Delegation
(d) Supervision
Answer:
(c) Delegation
2.The motivation theory which classifies needs in hierarchical order is developed by

(a) Fred Luthans
(b) Scott
(c) Abraham Maslow
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(d) Peter F. Drucker
Answer:
(c) Abraham Maslow
3.Which of the following is a financial incentive?

(a) Promotion
(b) Stock incentive
(c) Job Security
(d) Employee Participation
Answer:
(b) Stock incentive
4.Which of the following is not an element of the communication process?

(a) Decoding
(b) Communication
(c) Channel
(d) Receiver
Answer:
(b) Communication
5. Grapevine is
(a) Formal communication
(b) Barrier to communication
(c) Lateral communication
(d) Informal communication
Answer:
(d) Informal communication
6.‘Status’ comes under the following type of barriers

(a) Semantic barrier
(b) Organisational barrier
(c) Non semantic barrier
(d) Psychological barrier
Answer:
(b) Organisational barrier
7.The software company promoted by Narayana Murthy is

(a) Wipro
(b) Infosys
(c) Satyam
(d) HCL
Answer:
(b) Infosys
8.The highest-level need in the need Hierarchy of Abraham Maslow is

(a) Safety need
(b) Belongingness need
(c) Self-actualization need
(d) Prestige need
Answer:
(c) Self-actualization need
9.The process of converting the message into communication symbols is known as

(a) Media
(b) Encoding
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(c) Feedback
(d) Decoding
Answer:
(b) Encoding
10.The communication network in which all subordinates under a supervisor communicate through
supervisor only is:
(a) Single chain
(b) Inverted V
(c) Wheel
(d) Free flow
Answer:
(c) Wheel.
CHAPTER 8
CONTROLLING
1.What is meant by controlling? ( 1 Mark )

Answer:
Controlling means ensuring that activities in an organisation are performed as per the plans.
OR
Controlling is the process of ensuring that actual activities conform to planned activities.
2.Define managerial control. ( 2 Marks )

Answer:
According to Koontz and O’Donnel, “Managerial control implies the measurement of accomplishment
against the standard and the correction of deviations to assure attainment of objectives according to
plans.”
3.Explain the importance of controlling in an organisation.

(OR)
A good control system helps an organisation in many ways. Justify the statement with any four points. (4
Marks )
Answer:
Control is an indispensable function of management. A good control system helps an organisation in the
following ways:
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• It helps in accomplishing organisational goals: It helps in proper implementation of plans and
thereby contributes to achieve the organisational goals. It also helps in finding out deviations
immediately and to take corrective actions.
• It helps in judging accuracy of standards: A good control system enables management to
verify whether the standards set are accurate and objective. Thus, it helps to review and revise
the standards, if necessary.
• It helps in making efficient use of resources: Controlling helps to reduce wastage and spoilage
of resources. Thus, it ensures that resources are used in the most effective and efficient
manner.
• It helps in improving employee motivation: A good control system motivates the employees
and helps them to give better performance by enabling them to know well in advance what
they are expected to do and what are the standards of performance.
• It helps in ensuring order and discipline: Controlling creates an atmosphere of order and
discipline in the organisation. It helps to minimise dishonest behaviour on the part of the
employees by keeping a close check on their activities.
• It helps in facilitating coordination in action: By providing direction to all activities and
efforts for achieving organisational goals, controlling coordinates all the activities in the
organisation. (Write any four points)
4.Explain the limitations of controlling. ( 4 Marks )

Answer:
Although controlling is an important function of management, it suffers from the following limitations:
• Difficulty in setting quantitative standards: Control system loses some of its effectiveness
when standards
cannot be defined in quantitative terms. Employee morale, job satisfaction and human
behaviour are such areas where this problem might arise. This makes measurement of
performance and their comparison with standards a difficult task.
• Little control / No control: Generally an enterprise cannot control external factors such as
govt, policies, technological changes, competition etc.
• Resistance from employees: Control is often resisted by employees. They see it as a
restriction on their freedom. For instance, employees may object to the setting up of CCTV.
• Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort. A
small enterprise cannot afford to install an expensive control system.
5.Explain briefly the relationship between planning and controlling. ( 4 Marks )

Answer:
Planning and controlling are inseparable twins of management.
The standards of performance which serve as the basis of controlling are provided by planning.
Controlling is necessary to ensure that events conform to plans. Thus, planning without controlling is
meaningless. Similarly, controlling is blind without planning.
Planning is a prerequisite for controlling. Planning seeks consistent and integrated programmes; while
controlling | seeks to compel events to conform to plans.
Planning is basically an intellectual process which prescribes an appropriate course of action for
achieving objectives. On the other hand, controlling checks whether decisions have been translated into
desired action. Thus, planning is prescriptive while controlling is evaluative.
Plans are prepared for the future and are based on forecasts about future conditions. Therefore, planning
is called a forward looking function. While, controlling involves analysis of past activities to find
deviations from the standards. In that sense, controlling is a backward looking function.
However, it should be noted that planning is guided by past experience and corrective action initiated by
control function. And the control function aims to improve future performance. Therefore, planning and
controlling are both backward looking as well as forward looking functions.
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Thus, planning and controlling are interrelated and reinforce each other. Planning based on facts makes
controlling easier and effective and controlling improves future planning by providing information
derived from past experience.
6.Explain briefly the steps involved in controlling process. ( 4 Marks )

Answer:
Controlling is a systematic process involving the following steps.
(1) Setting performance standards: The first step in the controlling process is setting up performance
standards. Standards are the criteria (Yardstick) against which actual performance would be measured.
Standards can be set in both quantitative as well as qualitative terms. For instance, standards set in terms
of cost to be incurred, revenue to be earned, product units to be produced and sold, all represent
quantitative standards. Improving motivation level of employees. Improving consumer satisfaction level,
all represent qualitative standards.
(2) Measurement of actual performance: The next step is measurement of actual performance.
Measurement of actual performance can be made by a study of various reports and statements received
from the subordinates. It can also be made by personal observation, when the subordinates are at work.
Sample checking is another method of measurement of performance in large organisations. Efficiency of
production can be measured by counting the number of pieces produced and number of defective pieces
in a batch.
(3) Comparing actual performance with standards: This step involves comparison of actual performance
with the standard. Such comparison will reveal the deviation between actual and desired (i.e., standard)
results.
(4) Analysing deviations: Deviation means variation from the standard. Deviations which are beyond the
acceptable range of deviations and deviations in key areas of business need to be determined and
attended urgently. Critical point control and Management by exception should be used by a manager in
this regard.
After identifying the deviations that demand managerial attention, these deviations need to be analysed
for their causes. The causes of deviations may be due to unrealistic standards, defective process,
inadequacy of resources, inefficiency of an employee or environmental factors. Effort should be made to
identify the exact cause or causes of deviations to facilitate corrective action to be taken.
(5) Taking corrective actions: The final step in the controlling process is taking corrective action. When
the deviations go beyond the acceptable range, especially in the important areas, it demands immediate
managerial attention so that deviations do not occur again and standards are accomplished.
Corrective action might involve training of employees, providing of additional facilities, revision of
standards, changing the quality specification of materials to be used, repair or replace or undertake
technological upgradation of machinery, improve the physical conditions of work or modify the existing
process.
7.What is standard in controlling process? ( 1 Mark )

Answer:
Standard is the criterion (i.e., yardstick) against which the actual performance would be measured.
8.State any two traditional techniques of management control. ( 2 Marks )

Answer:
Traditional techniques of management control:
• Personal observation
• Statistical reports
• Break even analysis
• Budgetary control
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9.State any two modern techniques of managerial control. ( 2 Marks )
Answer:
Modern techniques of managerial control:
• Return on investment
• Ratio analysis
• Responsibility accounting
• Management audit
• PERT and CPM
• Management information system
10.As a manager of an organisation, what are the modern techniques of controlling you would like to
adopt? ( 5 Marks )
Answer:
As a manager of an organisation, I would like to adopt the following modem techniques of controlling:
• Return on investment
• Ratio analysis
• Responsibility accounting
• Management audit
• PERT and CPM
• Management Information System
(Write any 5 points)
11.Give the meaning of break even analysis. ( 2 marks )

Answer:
Break even analysis is a technique used by managers to study the relationship between costs, volume and
profits.
It determines the probable profit and losses at different levels of activity.
The sales volume at which there is no profit, no loss is known as break even point.
12.What do you understand about budgetary control? ( 2 Marks )

Answer:
• Budgetary control is a managerial control technique in which all operations are planned in
advance in the form of budgets and actual results are compared with budgetary standards.
• A budget is a quantitative statement for a definite future period of time for the purpose of
obtaining a given objective.
13.What is ratio analysis? ( 1 Mark )

Answer:
Ratio analysis refers to analysis of financial statements through computation of ratios such as current
ratio, operating ratio, debt equity ratio and so on.
14.What is responsibility accounting? ( 2 Marks )

Answer:
Responsibility accounting is a system of accounting in which different sections, divisions and
departments of an organisation are set up as ‘responsibility centres’ such as cost centre, revenue centre,
profit centre and so on. The head of the centre is responsible for achieving the target set for his centre.
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15.What is management audit? ( 2 Marks )
Answer:
Management audit refers to systematic appraisal of the overall performance of the management of an
organisation.
OR
Management audit may be defined as evaluation of the functioning, performance and effectiveness of
management of an organisation.
16.Expand PERT. ( 1 Mark )

Answer:
PERT = Programme Evaluation and Review Technique
17.Expand CPM. ( 1 Mark )

Answer:
CPM = Critical Path Method
18.Expand MIS. ( 1 Mark )

Answer:
MIS = Management Information System
19.What is management information system? ( 2 Marks )

Answer:
Management information system (MIS) is a computer based information system that provides
information and support for effective managerial decision making.
1.An efficient control system helps to

(a) Accomplish organisational objectives
(b) Boosts employee morale
(c) Judges accuracy of standards
Answer:
2.Controlling function of an organisation is

(a) Forward looking
(b) Backward looking
(c) Forward as well as backward looking
(d) None of the above
Answer:
(c) Forward as well as backward looking
3.Management audit is a technique to keep a check on the performance of

(a) Company
(b) Management of the company
(c) Shareholders
(d) Customers
Answer:
(b) Management of the company
4.Budgetary control requires the preparation of

(a) Training schedule
(b) Budgets
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(c) Network diagram
(d) Responsibility centres
Answer:
(b) Budgets
5.Which of the following is not applicable to responsibility accounting

(a) Investment centre
(b) Accounting centre
(c) Profit centre
(d) Cost centre
Answer:
(b) Accounting centre
CHAPTER 9
FINANCIAL MANAGEMENT
1.What is Business Finance? ( 1 Mark )

Answer:
Money required for carrying out business activities is called business finance.
(OR)
Funds needed to establish, to run, to modernise, to expand and to diversify the business is called business
finance.
2.What do you understand about financial management? ( 2 Marks )

Answer:
Financial management is concerned with optimal procurement and usage of finance. Thus, financial
management means procurement of required funds at minimum cost and utilisation of such funds in an
effective manner.
3.State the primary objective / aim of financial management. ( 1 Mark )

Answer:
The primary objective / aim of financial management is to maximise shareholders wealth; i.e., wealth
maximisation.
(Note: Shareholder’s wealth can be maximised by maximising the market value of equity shares. Market
value of (i.e., market price) a company’s shares can be maximised (i.e., increased) by taking efficient
financial decisions. i.e., by ensuring that the benefit of a financial decision exceeds the cost involved in
such a decision. For this purpose, in case of investment decision, it should be ensured that benefits from
the investment exceed the cost. Similarly, when finance is procured, the aim should be to reduce the
cost.)
4.State any two types of financial decisions. ( 2 Marks )

Answer:
Types of financial decisions
• Investment decision
• Financing decision
• Dividend decision
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5.Give the meaning of investment decision with an example. ( 2 Marks )
Answer:
Investment decision is a financial decision which relates to how the firm’s funds are invested in different
assets. For example, a decision to make an investment of Rs. 5 crore in a new machine or a decision to
make an investment of Rs. 2 crore to open a new branch and so on.
[Note: The management must take investment decisions in such a manner that the company is able to
earn the highest possible return for the investors. Investment decision can be a long term investment
decision i.e., capital budgeting decision – investment in fixed assets or short term investment decision
i.e., working capital decision-investment in current assets. Long term investment decisions are very
crucial for any business since they affect its earning capacity in the long run].
6.What is the capital budgeting decision? Explain briefly the factors affecting capital budgeting
decisions. ( 4 Marks )
Answer:
A long term investment decision is called a capital budgeting decision. In short, it is a decision to invest
in fixed assets. For example, A decision to make an investment in a new machine, a decision to open a
new branch etc. These decisions usually involve huge amounts of investment. They affect the earning
capacity of the business in the long run.
Factors affecting capital budgeting decisions:
• Cash flows of the project: A series of cash receipts (∴ cash inflow) and cash payments (i.e.,
cash outflow) over the life of an investment project should be carefully analysed before
considering a capital budgeting decision. The project which gives maximum cash inflow is to
be selected.
• The rate of return: The expected rate of return is another factor affecting capital budgeting
decision. Usually the project which gives highest rate of return should be selected.
• The investment criteria involved: While taking capital budgeting decision, the amount of
investment, interest rate, cash flows and rate of return involved in each investment proposal
should be evaluated by applying different capital budgeting techniques.
7.What is financing decision? Give an example. ( 2 Marks )

Answer:
The decision about the quantum (i.e., amount) of finance to be raised from various long term and short
term sources of finance is called financing decision. Thus, it is concerned with how much funds to be
raised and from which source.
For example, a decision taken to raise Rs. 1 crore by the issue of equity shares worth Rs. 60 lakh by the
issue of debentures worth Rs. 20 lakh and by borrowings from the bank Rs. 20 lakh.
[Note: The main sources of funds for a firm are shareholders’ Funds and borrowed (Debt) funds.
Shareholders’ fund includes equity capital, preference capital and retained earnings. Borrowed funds
include debentures and other borrowings from banks and other financial institutions. A firm has to decide
the right proportion of shareholders’ funds and borrowed funds. The financing decision determines the
overall cost of capital and the financial risk of the enterprise.]
8.Explain any four factors affecting financing decisions. ( 4 marks )
Answer:
Factors affecting financing decisions:
The important factors affecting financing decisions are:
• Cost : The cost of raising funds through different sources is one of the factors affecting
financing decisions. Usually, a prudent financial manager chooses a source which is the
cheapest.
• Risk: Risk associated with each of the sources is to be evaluated and the source with least risk
should be preferred.
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• Floatation costs: The floatation or fund raising costs are to be considered. The source with
lower floatation costs is to be preferred.
• Cash flow position of the company: An enterprise with a stronger cash flow position can go
for debt financing than funding through equity.
• Fixed operating costs: If a business has high fixed operating costs (such as building rent,
insurance premium and salaries), it must reduce its debt financing. If fixed operating cost is
less, more debt financing may be preferred.
• Control considerations: Companies afraid of a takeover bid would prefer debt to equity.
• State of capital market: Health of the capital market may also affect the choice of source of
fund. During the period when the stock market is rising, companies can easily raise funds by
the issue of equity shares.
9.Give the meaning of dividend decision. ( 2 Marks )

Answer:
Dividend decision is a financial decision which relates to how much of the profits earned by the company
(after paying tax) is to be distributed to the shareholders and how much of it should be retained in the
business. Thus, it relates to the appropriation of profit.
10.Explain any four factors affecting dividend decision. ( 4 Marks )

Answer:
Factors affecting dividend decision:
Some of the important factors affecting dividend decisions are:
• Amount of earnings: Since dividends are paid out of current and past earnings, amount of
earnings is a major determinant of the decision about dividend.
• Stability of earnings: Normally a company having stable earnings is in a better position to
declare higher dividends.
• Stability of dividends: Stable dividend policy of a company will see that dividend per share is
not altered if the change in earnings is small.
• Growth opportunities: Companies having good growth opportunities retain more money out
of their earnings so as to finance the required investment. Therefore, the dividend is smaller in
growth companies.
• Cash flow position: Availability of enough cash is necessary for declaration of dividend.
Therefore, a business which earns profit with sufficient cash position can pay a dividend.
• Shareholders' preference to get regular dividend is also one of the factors to be considered to
declare dividend.
• Taxation policy: If the tax on dividends is higher, less dividend is paid to shareholders.
• Stock market reaction: The possible impact of dividend policy on the equity share price is one
of the important factors considered by the management while taking a decision about it.
Usually when a dividend is declared, the stock market reacts positively.
• Access to capital market: Easy accessibility to capital market enables companies to pay higher
dividends. Because they need not retain their earnings to finance their growth.
• Legal constraints: Certain provisions of the Companies Act must be adhered to while
declaring the dividend.
11.Give the meaning of Financial Planning. ( 2 Marks )

Answer:
The preparation of a financial blueprint of an organisation’s future operations is called financial planning.
The objective of financial planning is to ensure that enough funds are available at the right time.
OR
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The process of estimating the fund requirement of a business and specifying the sources of funds is called
financial planning.
12.State the twin (i.e., two) objectives of financial planning. ( 2 Marks )

Answer:
The twin objectives of financial planning are:
• To ensure availability of funds whenever required.

• To see that the firm does not raise resources (i.e., funds) unnecessarily.
13.Explain the importance of financial planning with any four points. ( 4 Marks )
Answer:
Importance of financial planning:
• It helps in forecasting what may happen in future under different business situations.
Accordingly it develops alternative financial plans to face different situations. Thus, it makes
the firm better prepared to face the future.
• It helps in avoiding business shocks and surprises and helps the company in preparing for the
future.
• It helps in coordinating various business functions e.g., sales and production functions, by
providing clear policies and procedures.
• Detailed plans of action prepared under financial planning helps to reduce waste and
duplication of efforts.
• It tries to link the present with the future.
• It provides a link between investment and financing decisions on a continuous basis.
• It makes the evaluation of actual performance easier by specifying the detailed objectives for
various business segments.
14.What do you understand about capital structure? (OR) Give the meaning of capital structure. ( 1 Mark
)
Answer:
Capital structure refers to the mix between owners’ funds (i.e., equity) and borrowed funds (i.e., Debt).
Note 1: Owners’ funds consist of equity share capital, preference share capital and reserves and surplus
or retained earnings. Borrowed funds can be in the form of loans (borrowed from banks or other financial
institutions), debentures, public deposits etc
Note 2: Cost of debt (i.e., interest) is lower than the cost of equity (i.e., dividend). However, debt is
riskier while equity is risk less for a business.
Note 3: A capital structure is said to be optimal when the proportion of debt and equity is such that it
results in an increase in the value of the equity share.
15.What is financial leverage? Write the formula to calculate the financial leverage. ( 2 Marks )
Answer:
The proportion of debt in the overall capital is called financial leverage.
Formula to calculate financial leverage
16.Give the meaning of ‘Trading on Equity’. ( 2 Marks )

Answer:
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• Trading on equity refers to the increase in profit earned by the equity shareholders due to the
presence of fixed financial charges like interest.
• It is a situation where companies employ cheaper debt in their capital structure to enhance the
earnings per share (EPS).
17.Explain any four factors affecting the choice of capital structure. ( 4 Marks )
Answer:
Factors affecting the choice of capital structure:
• Cash flow position: Size of the projected cash flows must be considered before borrowing.
• Interest coverage ratio (ICR): It is the number of times earnings before interest and tax of a
company covers the interest obligation

• Debt service coverage ratio (DSCR): Here, cash profits generated are compared with the total
cash required.
• Return on investment (ROI): If the ROI of the company is higher, it can choose to use trading
on equity to increase its EPS.
• Cost of debt: More debt can be used if debt can be raised at a lower rate of interest.
• Tax rate: A higher tax rate makes debt relatively cheaper.
• Cost of equity (i.e., dividend to be paid) is another factor to be considered.
• Floatation costs: Fundraising cost is also to be considered while deciding the capital structure.
• Risk consideration: If a firm’s business risk is lower, its capacity to use debt is higher.
• Flexibility in borrowing is another factor to be considered.
• Control: The issue of control over a company is also another factor to be considered.
• Regulatory framework: The relative regulatory norms to be followed while raising funds may
also have a bearing upon the choice of the source of finance.
• Stock market conditions: The bullish stock market conditions favour shares and bearish stock
market conditions favour debentures to raise funds.
• Capital structure of other companies: A debt equity ratio of other companies in the same
industry may also be considered with due care.
18.As a financial consultant, give the list of any 10 factors which affect the choice of capital structure. ( 5
Marks )
Answer:
Following is the list of factors which affect the choice of capital structure.
• Cash flow position

• Interest coverage ratio (ICR)
• Debt service coverage ratio (DSCR)
• Return on investment (ROI)
• Cost of debt
• Tax rate
• Cost of equity
• Floatation costs
• Risk consideration
• Flexibility
• Control
• Regulatory framework
• Stock market conditions
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• Capital structure of other companies
(Write any ten points)
19.Write the formula to calculate debt service coverage ratio. ( 2 Marks )

Answer:
20.Write the meaning of financial risk. ( 1 Mark )

Answer:
Financial risk refers to a position when a company is unable to meet its fixed financial charges namely
interest payment, preference dividend and repayment obligations.
21.What is fixed capital? ( 1 Mark )

Answer:
Fixed capital refers to investment in long term assets or fixed assets such as investment in plant and
machinery, investment in building etc.
22.What are fixed assets? ( 2 Marks )

Answer:
Fixed Assets are those which remain in the business for more than one year, usually for a much longer
period e.g. Land and building, Machinery, Furniture etc.
23.Give an example for a fixed asset. ( 1 Mark )

Answer:
Examples of fixed assets:
• Land and Building

• Plant and Machinery
• Furniture
• Vehicles
24.Explain any four factors affecting the fixed capital requirement of an organisation. ( 4 Marks )
Answer:
Factors affecting the fixed capital requirements of an organisation.
(1) Nature of business: The nature of the business determines the amount of fixed capital requirement to
a great extent. For example, a trading concern needs lower investment on fixed assets; while
manufacturing concerns and public utility undertakings such as railways, electricity supply companies
etc. require more fixed capital to be invested on fixed assets.
(2) Scale of operations: A business concern with large scale operations requires more fixed capital as it
needs a bigger plant, more space etc., while a business concern with small scale operations requires less
fixed capital.
(3) Choice of technique or method of production: A capital intensive organisation requires higher
investment in fixed assets such as machinery and thus it needs more fixed capital. While labour intensive
organisation requires less investment in fixed assets resulting in lower fixed capital requirements.
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(4) Technology upgradation: The organisation using assets which are prone to obsolescence require
higher fixed capital to purchase new assets.
(5) Growth prospects: An organisation having higher growth prospects generally requires higher
investments in fixed assets and needs more fixed capital.
(6) Diversification: A concern which chooses to diversify its production requires more fixed capital. E.g.
A textile factory is diversifying and starting a cement manufacturing plant, and then it needs more fixed
capital investment.
(7) Financing alternatives: Organisations purchasing fixed assets on a cash basis require a large amount
of fixed capital. Those organisations which acquire fixed assets on hire purchase or instalment system or
on lease basis require lesser amount of fixed capital.
(8) Level of collaboration: Certain business concerns may share each other’s facilities, e.g., A bank may
use the ATM of another bank. Such collaboration reduces the level of investment in fixed assets.
25.What is working capital? ( 1 Mark )

Answer:
Working capital is the excess of current assets over current liabilities, i.e., working capital = current
assets – current liabilities.
26.How do you calculate net working capital? ( 1 Mark )
Answer:
Net working capital (NWC) can be calculated by deducting current liabilities (CL) from current assets
(CA)
i.e., NWC = CA – CL
27.Give the meaning of current assets. ( 2 Marks )

Answer:
Current assets are those assets which, in the normal routine of the business, get converted into cash or
cash equipment within one year.
e.g., inventories, debtors, bill receivables etc.
28.Give an example for current assets. ( 1 Mark )

Answer:
Examples of current assets:
• Cash in Hand
• Cash at Bank
• Marketable securities
• Bills receivable
• Debtors
• Inventory
(a) Finished goods
(b) Raw materials
• Work in progress
• Prepaid expenses
29.Give the meaning of current liabilities. ( 2 Marks )

Answer:
Current liabilities are those payment obligations which are due for payment within one year, such as bills
payable, creditors, outstanding expenses etc.
30.Explain any four factors affecting the working capital requirement of a business (or an organisation)
(4 Marks)
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Answer:
Factors affecting the working capital requirements of a business:
• Nature of business: The nature of business influences the amount of working capital required.
For instance, a trading business and service industries require less working capital. While
manufacturing business requires more working capital since raw materials need to be
converted into finished goods.
• Scale of operation: A business with large scale operations needs a large amount of working
capital to hold more inventory. On the other hand, a business concern with small scale
operations needs less working capital.
• Business cycle: In case of a boom, demand for goods increases, requiring a large amount of
working capital. In case of recession and depression, demand for goods declines, requiring
lesser amounts of working capital.
• Seasonal factors: In peak season, due to higher level of activity, larger amounts of working
capital is required. On the other hand, during lean season, the working capital requirement
will be lower.
• Production cycle: Working capital requirement is higher in concerns with longer production
cycle and lower in concerns with shorter production cycle.
• Credit allowed: A concern which allows liberal credit to its customers will require a larger
amount of working capital than a firm which restricts credit to its customers.
• Credit availed: A firm enjoying liberal credit facilities from its suppliers will need lower
working capital than a firm which does not enjoy liberal credit facilities from its suppliers.
• Operating efficiency: Operating efficiency may reduce the level of raw materials, finished
goods and debtors resulting in lower requirement of working capital.
• Availability of raw materials: If the raw materials and other required materials are available
continuously, lower stock levels may be sufficient requiring less amount of working capital.
• Growth prospects: When there is growth and expansion in the business of an enterprise, it will
require a large amount of working capital.
• Level of competition: Higher level of competition necessitates a business concern to hold
larger stocks of finished goods. It also forces the firm to extend liberal credit facilities. As a
result of which a firm needs more working capital.
• Inflation: If the rate of inflation is high, the firm needs more working capital.

1.The cheapest source of finance is:
(a) debenture
(b) equity share capital
(c) preference share
(d) retained earning
Answer:
(a) debenture
2.A decision to acquire a new and modern plant to upgrade an old one is a:
(a) financing decision
(b) working capital decision
(c) investment decision
(d) None of the above
Answer:
(c) investment decision
3.Other things remaining the same, an increase in the tax rate on corporate profits will:
(a) make the debt relatively cheaper
(b) make the debt relatively the dearer
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(c) have no impact on the cost of debt
(d) we can’t say
Answer:
(a) make the debt relatively cheaper
4.Companies with a higher growth pattern are likely to:

(a) pay lower dividends
(b) Pay higher dividends
(c) dividends are not affected by growth considerations
(d) none of the above
Answer:
(a) pay lower dividends.
5.Financial leverage is called favourable if:

(a) Return on Investment is lower than the cost of debt
(b) ROI is higher than the cost of debt
(c) Debt is easily available
(d) If the degree of existing financial leverage is low
Answer:
(b) ROI is higher than the cost of debt
6.Higher debt-equity ratio results in:

(a) lower financial risk
(b) higher degree of operating risk
(c) higher degree of financial risk
(d) higher EPS
Answer:
(c) higher degree of financial risk
7.Current assets are those assets which get converted into cash:
(a) within six months
(b) within one year
(c) between one and three years
(d) between three and five years
Answer:
(b) within one year
8.Financial planning arrives at:

(a) minimising the external borrowing by resorting to equity issues
(b) entering that the firm always have significantly more funds than required so that there is no paucity of
funds
(c) ensuring that the firm faces neither a shortage nor a glut of unusable funds.
(d) doing only what is possible with the funds that the firms has at its disposal
Answer:
(c) ensuring that the firm faces neither a shortage nor a glut of unusable funds.
9.Higher dividend per share is associated with:

(a) high earnings, high cash flows, unstable earnings and higher growth opportunities.
(b) high earnings, high cash flows, stable earnings and high growth opportunities.
(c) high earnings, high cash flows, stable earnings and lower growth opportunities
(d) high earnings, low cash flows, stable earnings and lower growth opportunities
Answer:
(b) high earnings, high cash flows, stable earnings and high growth opportunities.
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10.A fixed asset should be financed through:
(a) a long-term liability
(b) a short-term liability
(c) a mix of long and short-term liabilities
Answer:
(a) a long-term liability
11.Current assets of a business should be financed through:

(a) current liability only
(b) long-term liability only
(c) both types (i.e., long- and short-term liabilities).
Answer:
(c) both types (i.e., long- and short-term liabilities).
CHAPTER 10
FINANCIAL MARKET
1.Give the meaning of financial market. ( 1 Mark )

Answer:
A financial market is a market for the creation and exchange of financial assets. Financial assets include
shares, debentures and bonds.
[Note: The initial issue of shares and debentures by a public company results in the ‘creation’ of financial
assets. Purchase and sale of existing shares, debentures and bonds results in ‘exchange’ of financial
assets].
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2.Explain briefly the functions of a financial market. ( 4 Marks )
Answer:
Functions of a financial market:
• Mobilisation of savings and channelising them into the most productive uses: A financial
market facilitates the transfer of savings from savers to investors. Further, it helps to
channelise surplus funds into the most productive use.
• Facilitating price discovery: The interaction between the suppliers of funds (i.e., household)
and the receivers of funds (i.e., business firms) helps to establish a price for the financial asset
(i.e., shares, debentures and bonds)
• Providing liquidity to financial assets: Financial markets facilitate easy purchase and sale of
financial assets. Thus, they provide liquidity to financial assets (i.e., shares or debentures can
be easily converted into cash).
• Reducing the cost of transactions: The financial market provides a common platform where
buyers and sellers can meet for fulfilment of their individual needs. Thus, it helps both the
buyers and sellers of financial assets to save their time, effort and money.
3.What is money market? ( 1 Mark )

Answer:
Money market is a market for short term funds. It deals in monetary assets whose period of maturity is
less than one year.
[Note: It is a market where low risk, unsecured and short-term debt instruments that are highly liquid are
issued and actively traded every day. It enables the raising of short-term funds for meeting the temporary
shortages of cash. The major participants in the money market are the Reserve Bank of India (RBI),
commercial banks, Non-Banking Finance Companies, State Governments, Large Corporate Houses and
Mutual Funds.]
4.Explain any four money market instruments. ( 8 Marks )

Answer:
Following are the important money market instruments.
(1) Treasury Bills: They are instruments of short term borrowing issued by the Reserve Bank of India
(RBI) on behalf of the Government of India. Thus, they help the central govt, to meet its short-term
requirement of funds. Their maturity period is less than one year.
Treasury bills are issued in the form of promissory notes. They are highly liquid and have assured yield
and negligible risk. They are issued at a price lower than their face value and repaid at par. The price
difference is interest (i.e., discount). Treasury bills are available for a minimum amount of Rs. 25,000
and in multiples thereof.
(2) Commercial paper: It is a short term, unsecured negotiable instrument issued by large and
creditworthy companies, to raise short term funds at a lower rate of interest. Usually it has a maturity
period of 15 days to one year. It is sold at a discount and redeemed at par. Funds raised through
commercial paper are used to meet the floatation costs.
(3) Call money: Call money is a method by which banks faced with temporary shortage of cash can
borrow short term finance from other banks. The maturity period of call money is one day to 15 days.
Usually commercial banks raise short term finance by this method to be able to maintain the cash reserve
ratio prescribed by the RBI. The Interest rate paid on call money loans is known as call rate.
(4) Certificate of deposit (CD): Certificate of deposits are bearer documents issued by commercial banks
against the deposits kept by individuals and companies. They are short term, unsecured, negotiable
instruments. They carry a fixed rate of interest. They help to mobilise a large amount of money for short
periods.
(5) Commercial bill: A commercial bill is a bill of exchange used to finance the working capital
requirements of business firms. It is a short term negotiable instrument which is used to finance the credit
sales of firms. These bills can be discounted with a bank if the seller needs funds before the bill matures,
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When a trade bill is accepted by a commercial bank it is known as a commercial bill.
(Explain any four points)
5.What are treasury bills? ( 1 Mark )

Answer:
A treasury bill is an instrument of short term borrowing issued by the Reserve Bank of India on behalf of
the Govt of India.
6.What is capital market?

Answer:
• Capital market refers to facilities and institutional arrangements through which long term
funds both debt and equity are raised and invested.
• In short, it is a market for long term funds.
[Note: Capital market consists of development banks, commercial banks and stock exchanges. It helps
corporate undertakings and government to mobilise long term funds-and help the economic development
of the country.]
7.State any four differences between capital market and money market. ( 4 Marks )
Answer:
Distinction between capital market and money market
Basis of
Capital market Money market
difference
Financial institutions, Banks, Corporate

The RBI, banks, financial institutions and
Participants entities foreign investors and retail
finance companies.
investors
Equity shares, debentures, bonds and Treasury bills, trade bills, commercial paper
Instruments
preference shares. and certificates of deposit.
Investment
outlay A huge amount of financial outlay is
Huge sums of money is required.
not required by an individual investor.
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It deals in medium- and long-term
Duration The duration of securities is up to one year.
securities.
Liquidity Generally, securities enjoy liquidity. Securities enjoy higher degree of liquidity.
I instruments are riskier in respect of rI Instruments are much safer with a in

Safety
the returns and principal repayment. minimum risk of default.
Expected
return R rate of return is high. R rate of return is low.
8.Explain any four methods of floating new issues in the primary market. ( 4 Marks )
Answer:
Varies methods of floating new issues in the primary market are:
(1) Offer through prospectus (or public issue): Offer through prospectus is the most popular method of
raising funds by public companies in the primary market. This involves inviting subscriptions from the
public through issue of prospectus in the form of newspaper advertisement.
(2) Offer for sale: Under this method, securities are offered for sale through intermediaries like issuing
houses or stock brokers. In this case the company sells securities at an agreed price to brokers who, in
turn, resell them to the investing public.
(3) Private placement: Private placement is the allotment of securities by a company to institutional
investors and some selected individuals. It helps to raise capital more quickly than a public issue.
(4) Rights issue: Under this method, the existing shareholders are offered the ‘right’ to buy new shares in
proportion to the number of shares they already possess.
(5) e-IPOs: It is a method of raising capital under which a company proposing to issue shares to the
public i.e., initial public offer (IPO) enters into an agreement with the stock exchange to sell its shares
through the online system of the stock exchange. SEBI registered brokers have to be appointed for the
purpose of accepting applications and placing orders with the company.
9.Expand IPO. ( 1 Mark )

Answer:
IPO = Initial Public Offer
10.Distinguish between primary market and secondary market (any four points) ( 4 Marks )
Answer:
Distinguish between primary market and secondary market
Primary Market (New issue market):
• It involves issue (sale) of new securities by new or by existing companies.

• Securities are sold by the company to the investor directly.
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• The flow of funds is from savers to investors.
• It directly promotes capital formation.
• Prices of securities are determined and decided by the management of the company.
Secondary Market (Stock exchange):
• There is trading of already existing securities only.

• Ownership of existing securities is exchanged between investors. The company is not
involved at all.
• Enhances encashability (i.e., liquidity) of shares.
• It indirectly promotes capital formation.
• Prices are determined by demand and supply relating to security.
11.What is the stock exchange? ( 1 Mark )

Answer:
A stock exchange is an institution which provides a platform for buying and selling of existing securities.
12.What is the stock exchange? Explain the functions of the stock exchange. ( 8 Marks )
Answer:
A stock exchange is an institution which provides a platform for buying and selling of existing securities.
According to Securities Contracts (Regulation) Act, 1956, Stock exchange means, “any body of
individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or
controlling the business of buying and selling or dealing in securities”.
Functions of Stock Exchange:
Following are some of the important functions of a stock exchange.
(1) Providing liquidity and marketability to existing securities: The basic function of a stock exchange is
the creation of a continuous market where securities are bought and sold. It gives investors the chance to
disinvest and reinvest. This provides both liquidity and easy marketability to already existing securities in
the market.
(2) Pricing of securities: Share prices in a stock exchange are determined by the forces of demand and
supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are
determined. Such a valuation provides important instant information to both buyers and sellers in the
market.
(3) Safety of transaction: The membership of a stock exchange is well regulated and its dealings are well
defined according to the existing legal framework. This ensures that the investing public gets a safe and
fair deal on the market.
(4) Contributes To economic growth: Stock exchange is a market in which existing securities are resold
or traded. Through this process of disinvestment and reinvestment savings get channelised into the most
productive investment avenues. This leads to capital formation and economic growth.
(5) Spreading of the equity cult : The stock exchange can play a vital role in ensuring wider share
ownership by regulating new issues, better trading practices and taking effective steps in educating the
public about investments.
(6) Providing scope for speculation: The stock exchange provides sufficient scope within the provisions
of law for speculative activity in a restricted and controlled manner. It is generally adopted that a certain
degree of healthy speculation is necessary to ensure liquidity and price continuity to the stock market.
Thus, efficient functioning of a stock exchange creates a positive environment among investors and leads
to the growth of the primary market for new issues.
13.Write any four advantages of “Electronic Trading System” in stock exchanges. ( 4 Marks )
Answer:
Advantages of Electronic Trading System (or screen based trading or online trading) in stock exchanges:
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• It ensures transparency in transactions as it allows participants to see the prices of all
securities in the market while business is being transacted. They are able to see the full market
during real time.
• It helps in fixing security prices efficiently by increasing the efficiency of information being
passed on. The computer screens display information on prices and also capital market
developments that influence share prices.
• It increases the efficiency of operations, since there is reduction in time, cost and risk of error.
• This system has improved the liquidity of securities by enabling a large number of
participants to trade with each other. People from all over the country and even abroad can
buy or sell securities through brokers.
• On-line trading system provides a single trading platform as the business is transacted at the
same time in all the trading centres. Thus, all the trading centres spread all over the country
have been brought into one trading platform on the computer.
Now, screen based trading or online trading is the only way available to buy or sell shares in the
secondary market.
14.Briefly explain the steps in the screen based trading and settlement procedure in a stock exchange. ( 8
Marks )
Answer:
The steps in the screen based trading (or electronic trading or online trading) and settlement procedure in
a stock exchange:
(1) If an investor wishes to buy or sell any security, first he has to approach a SEBI registered broker or
sub-broker. After providing necessary information such as PAN, Bank account details, Depository
account details, date of birth, address etc., the investor has to sign a broker – client agreement and a client
registration form, (in which client code number is given). The broker then opens a trading account in the
name of the investor.
(2) The investor has to open a ‘Demat’ account (or beneficial owner account) with a depository
participant (DP) for holding and transferring securities in the demat form. He will also have to open a
‘Bank account’. With these preliminary steps, the other steps involved in online trading and settlement
are:
(3) Placing an order with the broker to buy or sell shares. In the order, the investor should specify the
type and number of shares and the price at which the shares should be brought or sold.
(4) The broker will then go online and connect to the main stock exchange and match the share and the
best price available.
(5) The broker will then execute the order by actually buying or selling shares according to the
instructions of the investor. The order will be executed electronically.
(6) After the trade has been executed, within 24 hours the broker issues a contract note to the investor.
This note contains details of the number of shares bought or sold, the price, the date and time of deal and
the brokerage charges. (A unique order code number given by the stock exchange is printed on the
contract note).
(7) Now, the investor has to deliver the shares sold by giving a proper delivery instruction slip or pay
cash for the shares bought by issuing a cheque for the amount. This enables the broker to make payment
or deliver the shares to the exchange.
(8) Cash is paid or securities are delivered to the stock exchange by the broker on the pay in day, which
is before the T + 2 day.
(9) On the T + 2 day (i.e., payout day), the exchange will deliver the share or make payment to the other
broker.
(10) The other broker then has to make payment to the investor who had sold shares within 24 hours of
the payment day. Similarly, the broker makes delivery of shares in demat form directly to the demat
account of the investor who made purchases.
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15.Give the meaning of dematerialization. ( 1 Mark )
Answer:
The process of cancelling physical forms of securities and holding them in an electronic form is called
dematerialization.
16.What is a demat account? ( 1 Mark )

Answer:
Demat account is an account opened and maintained with a Depository through Depository participant
for holding and transferring securities in the demat (i.e., electronic) form.
Question 17.
How does the Demat system work? Explain. ( 8 Marks )
Answer:
The process of converting the securities from the physical or material form to electronic form is called
dematerialization.
Working of the Demat System:
• A depository participant (DP) (either a bank, a broker or a financial services company) may
be identified.
• An account opening form and documentation (PAN card details, photograph, power of
attorney) may be completed.
• The physical (share) certificate is to be given to the DP along with a dematerialisation request
form.
• If shares are applied in a public offer, simple details of DP and demat account are to be given
and the shares on allotment would automatically be credited to the demat account.
• When the shares are sold through a broker,, the DP is to be instructed to debit the account
with the number of shares sold.
• The broker then gives instruction to his DP for delivery of the shares to the stock exchange.
• The broker then receives payment and pay the person for the shares sold.
• All these transactions are to be completed within 2 days, i.e., delivery of shares and payment
received from the buyer is on a T + 2 basis settlement period.
18.What is meant by depository? ( 1 Mark )

Answer:
A depository is like a bank and keeps securities in electronic form on behalf of the investor. (Note: there
are two depositories.
• National Securities Depository Limited (NSDL)

• Central Depository (India) Limited (CDSL).
19.Name the first and the largest depository presently operational in India? ( 1 Mark )
Answer:
National Securities Depository Limited (NSDL)
20.Expand NSDL. ( 1 Mark )

Answer:
NSDL → National Securities Depository Limited.
21.Expand CDSL. ( 1 Mark )

Answer:
CDSL = Central Depository Services (India) Limited.
(OR)
Central depository Services Limited.
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22.Who is a Depository Participant (DP)? ( 1 Mark )
Answer:
Depository participant is an intermediary between the investor and the depository e.g., Banks and stock
brokers may be depository participants.
23.Expand NSEI (OR) NSE. ( 1 mark )

Answer:
NSEI = National Stock Exchange of India.
(OR)
National Stock Exchange.
24.What is the benchmark index of NSE? ( 1 Mark )

Answer:
NIFTY
25.Expand BSE. ( 1 Mark )

Answer:
BSE = Bombay Stock Exchange
26.What is the benchmark index of BSE? ( 1 Mark )

Answer:
SENSEX
27.Expand NASDAQ. ( 1 Mark )

Answer:
NASDAQ = National Association of Securities Dealers Automated Quotations. .
It is the New York Stock Exchange Index.
(Note: This term may not be asked in the examination because its expanded form is not given in the
NCERT Text Book)
28.Expand SEBI. ( 1 Mark )

Answer:
SEBI = Securities and Exchange Board of India.
29.State the objectives of Securities and Exchange Board of India. ( 4 Marks )

Answer:
• To regulate stock exchanges and the securities industry and to promote their orderly functioning.
• To protect the rights and interests of investors, particularly individual investors and to guide and
educate them.
• To prevent trading malpractices and achieve a balance between self regulation by the securities
industry and its statutory regulation.
• To regulate and develop a code of conduct and fair practices by intermediaries like brokers,
merchant bankers , etc. with a view to make them competitive and professional.
Thus, the overall objective of SEBI is to protect the interests of investors and to regulate and promote the
development of the securities market.
30.Explain the functions of securities and Exchange Board of India. ( 8 Marks )

Answer:
SEBI is entrusted with the twin task of both regulation and development of the securities market. It also
has certain protective functions.
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Regulatory functions:
• Registration of brokers and sub-brokers and other players in the market.

• Registration of collective investment schemes and Mutual Funds.
• Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the
business in stock exchanges and any other securities market.
• Regulation of takeover bids by companies.
• Calling for information by undertaking inspection, conducting enquiries and audits of stock
exchanges and intermediaries.
• Levying fee or other charges for carrying out the purposes of the Act.
• Performing and exercising such power under Securities Contracts (Regulation) Act 1956, as may
be delegated by the Government of India.
Development Functions:
• Training of intermediaries of the securities market.

• Conducting research and publishing information useful to all market participants.
• Undertaking measures to develop the capital markets by adopting a flexible approach.
Protective Functions:
• Prohibition of fraudulent and unfair trade practices like making misleading statements,
manipulations, price rigging etc.
• Controlling insider trading and imposing penalties for such practices.
• Undertaking steps for investor protection.
• Promotion of fair practices and code of conduct in the securities market.
Some common stock market terms:
• Bourses is another word for the stock market.

• Bulls and Bears – The term does not refer to animals but to market sentiment of the investors. A
Bullish phase refers to a period of optimism and a Bearish phase to a period of pessimism on the
bourses.

1.Primary and secondary markets:
(a) Compete with each other
(b) Complement each other
(c) Function independently
(d) Control each other
Answer:
(b) Complement each other
2. The total number of Stock Exchanges in India is :
(a) 20
(b) 21
(c) 22
(d) 23
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Answer:
(b) 21
Note: At present only NSE and BSE are the two active stock exchanges in our country.
3.The settlement cycle in NSE is :

(a) T + 5
(b) T + 3
(c) T + 2
(d) T + 1
Answer:
(c) T + 2
4.The National Stock Exchange of India was recognized as a stock exchange in the year.
(a) 1992
(b) 1993
(c) 1994
(d) 1995
Answer:
(b) 1993
5.NSE commenced futures trading in the year:

(a) 1999
(b) 2000
(c) 2001
(d) 2002
Answer:
(b) 2000
6.Clearing and settlement operations of NSE are carried out by:

(a) NSDL
(b) NSCCL
(c) SBI
(d) CDSL
Answer:
(a) NSDL
7.A Treasury Bill is basically:

(a) An instrument to borrow short-term funds
(b) An instrument to borrow long-term funds
(c) An instrument of capital market
(d) None of above
Answer:
(a) An instrument to borrow short-term funds
CHAPTER 11
MARKETING
1.What is a market? ( 1 Mark )

Answer:
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Market refers to a set of actual and potential buyers of a product or service. For example, the market for
smartphones refers to all the actual and potential buyers for smartphones.
(Note: In the traditional sense, the term market refers to the place where buyers and sellers gather to enter
into transactions involving the exchange of goods and services).
2.What is marketing? ( 2 Marks )

Answer:
• Marketing is a process whereby people exchange goods and services for money or for something
of value to them.
• In other words, marketing is a social process wherein people interact with others, in order to
persuade them to act in a particular way, say to purchase a product or service.
(Note: Traditionally, marketing has been referred to as performance of business activities that direct the
flow of goods and services from producers to consumers. In this connection, a number of activities such
as product designing, packaging, warehousing, transportation, branding, selling, advertising and pricing
are to be performed).
3.Define marketing. ( 2 Marks )

Answer:
Philip Kotler has defined marketing as, “a social process by which individual groups obtain what they
need and want through creating offerings and freely exchanging products and services of value with
others.”
4.State any two features of marketing. ( 2 Marks )

Answer:
Features of Marketing:
(1) Needs and Wants: The focus of the marketing process is on satisfaction of the needs and wants of
individuals and organisations.
(2) Creating a market offering: On the part of the marketers, the effort involves creation of a market
offering: (Market offering refers to a complete offer for a product or service at a certain price available at
a given outlet or location).
(3) Customer value: The process of marketing facilitates exchange of products and services between the
buyers and the sellers. In the process, the marketer tries to add to the value of the product so that the
customer prefers to buy it.
(4) Exchange mechanism: The process of marketing works through the exchange mechanism. The
individuals
(buyers and sellers) obtain what they need and want through the process of exchange. In other words, the
process of marketing involves exchange of products and services for money or something considered
valuable by the people.
(Note: 4 points may be asked for 4 marks)
5.State any two examples for things that can be marketed other than product. ( 2 Marks )
Answer:
• A service: (e.g., services rendered by a doctor, insurance service.)

• An idea (Family planning)
• An event (music concert, fashion show)
• A place (The city of gardens)
(Write any two examples)
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6.Give an example for the marketing of services. ( 1 Mark )
Answer:
Examples for marketing of services:
• Insurance
• Health care,
• Business Process Outsourcing
• Online trading
(Write any one)
7.Define marketing management. ( 2 Marks )

Answer:
Philip Kotler has defined marketing management as “the art and science of choosing target markets and
getting, keeping and growing customers through creating, delivering and communicating superior
customer values of management.”
8.Discuss briefly any four differences between selling and marketing. ( 4 Marks )
Answer:
Marketing refers to a large set of activities of which selling is just one part.
The major differences between selling and marketing are:
(1) Part of the process vs wider term: Selling is only a part of the process of marketing. But marketing is
a much wider term consisting of a number of activities such as identification of the customer’s needs,
developing the products to satisfy these needs, fixing prices and persuading the potential buyers to buy
the same.
(2) Transfer of title vs satisfying customer needs: Selling is concerned with affecting transfer of title and
possession of goods from sellers to buyers (i.e., consumers or users). But marketing activities concentrate
on satisfaction of the customers needs and wants.
(3) Profit through maximising sales vs customer satisfaction: The main aim of selling is profit
maximisation through maximisation of sales. But marketing is concerned with customer satisfaction and
thereby increasing profit in the long run.
(4) Start and end of the activities: Selling activities start after the product has been developed. But
marketing activities start much before the product is produced and continue even after the product has
been sold.
(5) Difference in the emphasis: In selling, the emphasis is to make the customer buy the product. But in
marketing, the attempt is to develop the product as per the customer need.?.
(6) Difference in the strategies: Selling involves efforts like promotion and persuasion. But marketing
uses
integrated marketing efforts involving strategies in respect of product, promotion, pricing and physical
distribution. (Write any 4 points)
9.State any one marketing management philosophy (or concept). ( 1 Mark )

Answer:
• The production concept.

• The product concept.
• The selling concept.
• The marketing concept.
• The societal marketing concept
101
10.Explain any eight functions of marketing. ( 8 Marks )
Answer:
Functions of marketing: Marketing is concerned with exchange of goods and services from producers to
consumers or users in such a way that maximises the satisfaction of customers’ needs. The process of
marketing involves the performance of following functions.
(1) Gathering and analysing market information: One of the important functions of a marketer is to
gather and analyse market information. It involves gathering information about the market conditions
such as number of potential consumers, their location, their preference, their purchasing power etc.
Further, the gathered information must be analysed. This is necessary to identify the needs of the
customers and make various decisions for the successful marketing of the products and services.
(2) Mark ting planning: Another important activity of a marketer is to develop appropriate marketing
plans so that the marketing objectives of the organisation can be achieved. For example, if a marketer of
product ‘X’ decides to increase his market share by 20% over last year's share, he has to develop a
complete marketing plan for increasing the level of production, promotion of the product etc. to achieve
this target.
(3) Product designing and development: Another important marketing activity relates to product
designing and development. A good design (i.e., shape, style etc) of a product gives it a competitive
advantage in the market.
(4) Standardisation and grading: Standardisation of products, i.e., producing goods of predetermined
specifications which helps in achieving uniformity and consistency in output, is another important
marketing activity. Marketing activity also involves grading, i.e., the process of classification of products
into different groups, on the basis of some of its important characteristics such as quality, size, etc, e.g.
Grade I apple, Grade II apple etc.
(5) Packaging and labelling: Marketing activity involves designing and developing the package for the
product and the label to be put on the package. Packaging protects the products and also serves as a
promotional tool.
E.g., packaging has played an important role in the success of many of the consumer products in recent
times such as lays or uncle chips, potato wafers, clinic plus shampoo, Colgate toothpaste, etc.
(6) Branding: Giving a brand name to products such as ‘Reynolds’ pen, ‘Samsung’ Cell phone, ‘Colgate’
toothpaste, ‘Godrej’ Almirah is another important function of marketing. It helps in distinguishing the
product of a firm with that of the competitor. .
(7) Customer support services: A very important function of the marketing management relates to
developing customer support services such as after sales services, handling customer complaints and
adjustments, procuring credit services, maintenance services, technical services and consumer
information. All these services aim at providing maximum satisfaction to the customers which is the key
to marketing success.
(8) Pricing of product: The marketers have to properly analyse the factors such as cost of production,
profit expected, competitors price etc. and determine the appropriate price to it. Because the demand for a
product or service is related to its price.
(9) Promotion: The marketer has to inform the customers about the firm's product, its features, etc. and
persuade them to purchase these products. Advertising, personal selling, publicity and sales promotion
are the different methods used by a marketer to undertake promotion. Marketers have to decide the
promotion budget and promotion mix.
(10) Physical Distribution: Managing physical distribution is another very important function in the
marketing of goods and services. Marketers have to decide the channels of distribution (like wholesalers,
retailers) to be used and physical movement of the product from where it is produced to a place where it
is required by the customers.
(11) Transportation: Marketer has to take measures for the physical movement of goods from the places
of production to the places of consumption by using suitable modes of transport (i.e., land or water or air
transport)
(12) Storage or warehousing: Marketer provides proper facilities for storage of the products in order to
maintain smooth flow of products in the market.
Thus, marketing involves the performance of many important functions which helps the trader to earn
sufficient profits through the satisfaction of consumer needs.
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11.What is standardisation? ( 2 Marks )
Answer:
Standardisation refers to producing goods of predetermined specifications, which helps in achieving
uniformity and consistency in the output.
12.What is the grading of products? ( 2 Marks )

Answer:
Grading is the process of classification of products into different groups, on the basis of some of its
important characteristics such as quality, size, etc. e.g., Grade I, Grade II etc.
13.How do you describe Marketing mix?

(Or)
What is the marketing mix? ( 2 Marks )
Answer:
Marketing mix is a set of marketing tools that the firm uses to pursue its marketing objectives in a target
market. There are 4 elements of marketing mix. They are:
• Product
• Price
• Place
• Promotion
14.Explain the elements of the marketing mix. (4 Marks )

Answer:
Marketing mix consists of the following elements (popularly known as 4 Ps of marketing):
• Product
• Price
• Place
• Promotion
(1) Product: Product means goods or services or ‘anything of value’ which is offered to the market for
sale. For example, Amul milk, ghee, butter, cheese, chocolates, etc. are the food products offered to the
market for sale by AMUL. The concept of product relates to not only the physical product but also the
benefits offered by it.
It also includes other aspects like after sales services, availability of spare parts, handling complaints etc.
The important product decisions include, deciding about the features, quality, packaging, labelling and
branding of the products.
(2) Price: Price is the amount of money that the customers have to pay to obtain the product. Marketers
have to analyse the factors determining the price such as, cost of the product, profit expected, elasticity of
demand, competitors price etc. and fix a price for the firm's products. Decisions have also to be taken in
respect of discounts to customers, credit terms etc.
(3) Place: Place or physical distribution include activities that make a firm's products available to the
target customers. Important decision areas in this respect include selection of dealers (e.g., wholesaler,
retailers etc) to reach the customers and providing support to the intermediaries (e.g. by way of discounts
etc). The other decision areas include managing inventory, storage and transportation of goods from the
place it is produced to the place it is required by the buyers.
(4) Promotion: Promotion of products and services include activities that communicate availability,
features, merits etc. of the products to the target customers and persuade them to buy it. Most marketing
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organisations undertake various promotional activities through using number of tools such as advertising,
personal selling and sales promotion techniques (like price discounts, free samples etc)
The success of a market offer will depend on how well these ingredients are mixed to create superior
value for the customers and simultaneously achieve their sale and profit objectives.
15.State any one element of the marketing mix. ( 1 Mark )

Answer:
Elements of marketing mix
• Product
• Price
• Place
• Promotion
16.Give the meaning of ‘product’? ( 1 Mark )

Answer:
Product means goods or services or ‘anything of value’ which is offered to the market to satisfy customer
needs.
OR
Product is a mixture of tangible and intangible attributes, which are capable of being exchanged for
value, with ability to satisfy customer needs.
17.What do you mean by consumer goods?

(OR)
Give the meaning of consumer products. ( 2 Marks )
Answer:
Products which are purchased by the ultimate consumers or users for satisfying their personal needs and
desires are referred to as consumer products. For example, soap, eatables, textiles, toothpaste, fans, etc.
18.Give the meaning of convenience goods. ( 2 Marks )

Answer:
Those consumer products, which are purchased frequently, immediately and with least time and efforts
are referred to as convenience goods. E.g., ice creams, medicines, newspapers, stationary items,
toothpaste etc.
19.Give two examples for convenience goods. ( 2 Marks )

Answer:
Examples for convenience goods:
• Cigarettes
• Ice creams
• Medicines
• Newspapers
• Stationery items
• Toothpaste
(Write any two items)
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20.Write any four characteristics of convenience products (goods) ( 4 Marks )
Answer:
Features or characteristics of convenience products
• These products are purchased at convenient locations, with least effort and time.
• Consumer products have a regular and continuous demand.
• These products have small units of purchase and low prices.
• Convenience products have standardised prices.
• The competition in these products is high.
21.State any one feature of convenience goods. ( 1 Mark )

Answer:
These products are purchased at convenient locations, with least effort and time.
22.How do you describe shopping products?

(Or)
Give the meaning of shopping products. ( 2 Marks )
Answer:
Shopping products are those consumer goods in the purchase of which buyers devote considerable time
to compare the quality, price, style, suitability etc. at several stores before making the fixed purchase,
e.g., clothes, shoes, jewellery, furniture, television etc.
23.State any two characteristics of shopping products. ( 2 Marks )

Answer:
Characteristics of shopping products:
• The shopping products are generally of durable nature.

• The unit price and profit margin of shopping products is generally high.
• Purchases of shopping products are generally preplanned.
• Retailers generally play an important role in the sale of shopping products.
24.Give the meaning of specialty products. ( 2 Marks )

Answer:
Specialty products are those consumer goods which have certain special features because of which
people make special efforts in their purchase. E.g., rare collection of artwork or of antiques.
25.State any four characteristics (or features) of specialty products. ( 4 Marks )

Answer:
Characteristics of speciality products:
• The demand for specialty products is limited as a relatively small number of people buy these
products.
• These products are generally costly and their unit price is very high.
• These products are available for sale at a few places.
• An aggressive promotion is required for the sale of speciality products in order to inform
people about their availability, features etc.
• After sales services are very important for many of the specialty products.
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26.Give the meaning of durable products. ( 2 Marks )
Ans: Those tangible consumer products which normally survive many uses are referred to as durable
products.
E.g. Refrigerator, television, bicycle, sewing machine, kitchen gadgets etc.
27.State any two examples of durable products.

Answer:
Examples of durable products:
• Refrigerator
• Bicycle
• Sewing machine
• Cooker
• Television
28.Give the meaning of non-durable products. ( 2 Marks )

Answer:
The consumer products which are normally consumed in one or few uses are called non-durable
products.
E.g. toothpaste, bathing soap, stationary products, etc.
29.State any two examples for services. ( 2 Marks )

Answer:
Examples for services:
• Dry cleaning
• Watch repairs
• Hair cutting
• Postal services
• Services offered by a doctor.
30.State any two characteristics of services. ( 2 Marks )

Answer:
Characteristics of services:
• Services are intangible.

• A service is inseparable from its source.
• The services cannot be stored.
• Services are highly variable.
31.Give the meaning of industrial products. ( 2 Marks )

Answer:
Industrial products are those products which are used as inputs in producing other products.
E.g., raw materials, machines, engines, etc.
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32.Give two examples of industrial products. ( 2 Marks )
Answer:
Examples of Industrial products:
• Raw materials
• Machines
• Engines
• Tools
• Lubricants
33.Briefly explain any four characteristics of industrial products. ( 4 Marks )

Answer:
Characteristics of industrial products.
• Number of buyers: The number of buyers of industrial products is limited. E.g. sugarcane is
purchased by a few producers of sugar.
• Channel levels: The sale of industrial products is generally made with the help of shorter
channels of distribution i.e., direct selling or one level selling.
• Derived demand: The demand for industrial products is derived from the demand for
consumer products e.g, (he demand for leather (i.e., industrial product) will be derived from
demand for shoes (consumer product)
• Role of technical considerations: Technical considerations assume greater significance in the
purchase of industrial products because these products are complex products bought for use in
business operations.
• Leasing out: A growing trend in the industrial product market is to lease out rather than to
purchase the products on an outright basis because of the heavy price of these products.
• Geographical concentration: Industrial markets are highly concentrated, geographically.
• Reciprocal buying: Some big companies like steel, rubber, medicines resort to the practice of
reciprocal
buying.
34.What is the generic name of a product? ( 1 Mark )

Answer:
Generic name refers to the name of the whole class of the product. For example, a book, a camara, a wrist
watch, a tyre, toilet soap.
[Note: If products are sold by generic names, marketers find it difficult to distinguish their products from
that of their competitors],
35.What is branding? ( 2 Marks )

Answer:
The process of giving a name or a sign or a symbol etc. to a product by marketer is called branding. It
helps in identifying and distinguishing his products from the competitors' products.
36.What is branding? Explain briefly its advantages to marketers and customers. ( 8 Marks )
Answer:
The process of giving a name or a sign or a symbol etc. to a product by marketer is called branding. It
helps in identifying and distinguishing his products from the competitors' products.
I. Advantages of branding to the marketers:
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(1) Enables Marking Product Differentiation: Branding helps a firm in distinguishing its product from
that of its competitors. This enables the firm to secure and control the market for its products.
(2) Helps in Advertising and Display Programmes: A brand aids a firm in its advertising and display
programmes. Without a brand name, the advertiser can only create awareness for the generic product.
(3) Differential Pricing: Branding enables a firm to charge different price for its products than that
charged by its competitors. This is possible because if customers like a brand they do not mind paying a
little higher for it.
(4) Ease in Introduction of New Product: If a new product is introduced under a known brand, it enjoys
the reflected glory of the brand and is likely to get off to an excellent start. Samsung extended the brand
name of its Television to Washing Machines, Cell Phone and other products.
II. Advantages of branding to customers:
(1) Helps in Product Identification: Branding helps the customers in identifying the products. For
example, if a person is satisfied with a particular brand of a product, say detergent soap, while buying it,
he need not make a close inspection every time. Thus, branding greatly facilitates repeat purchase of the
products.
(2) Ensures Quality: Branding ensures a particular level of quality of the product. Thus, whenever there
is any deviation in the quality, the customers can get remedy from the manufacturer or the marketer. This
builds up the confidence of the customers and helps in increasing his level of satisfaction.
(3) Status Symbol: Some brands become status symbols because of their quality. The consumers of those
brands of products feel proud of using them and add to the level of satisfaction of the customers. Thus,
branding plays an important role in helping both the marketer and the customers.
37.What is a brand? ( 2 Marks )

Answer:
A brand is a name, term, symbol, design or some combination of them, used to identify the products –
goods or services of one seller and to differentiate them from those of the competitor’s. For example,
some of the common brands are, Bata, Life buoy, Dunlop, Parker, Colgate, Godrej etc. Brand has two
components – brand name and brand mark.
[Note: Brand mark: That part of a brand which can be recognized but which is not utterable is called
brand mark. It appears in the form of a symbol or design e.g., Devil of Onida].
38.State any four considerations to be kept in mind while choosing a brand name.
(Or)
State any four characteristics of a good brand name. ( 4 Marks )
Answer:
Characteristics of a good brand name or considerations to be kept in mind while choosing a brand name:
• The brand name should be short, easy to pronounce, spell, recognize and remember e.g.,
Ponds, VIP, Rin, Vim, etc.
• A brand should suggest the product’s benefits and qualities. It should be appropriate to the
product’s function. E.g., Promise, Boost.
• A brand name should be distinctive e.g., Zodiac.
• The brand name should be adaptable to packing or labelling requirements, to different
advertising media and to different languages.
• The brand name should be sufficiently versatile to accommodate new products, which are
added to the product line e.g., Maggie, Samsung.
• It should be capable of being registered and protected legally.
• Chosen name should have staying power i.e., it should not get out of date.
Question 39.
What is packaging? ( 1 Mark )
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Answer:
Packaging refers to the act of designing and producing the container or wrapper of a product.
40.How does packaging acquire significance in the marketing of goods?

(Or)
Explain the importance of packaging in marketing of goods.
(Or)
Explain the advantages of packaging of consumer products. ( 4 Marks )
Answer:
Packaging plays a very important role in the marketing success of many products. For example, it was
one of the important factors in the success of products like Maggie’s Noodles and Uncle chips.
Packaging has acquired great significance in the marketing of goods and services, because of the
following reasons.
(1) Rising standards of health and sanitation: Because of the increasing standards of living in the country,
more and more people have started purchasing packaged goods as the chances of adulteration in such
goods are minimised.
(2) Self service outlets: Packaging plays the role of personal selling in respect of promotion in self-
service retail outlets, particularly in major cities and towns.
(3) Innovational Opportunity: Some of the recent developments in the area of packaging have completely
changed the marketing scene in the country. For example, milk can now be stored for 4-5 days without
refrigeration in the recently developed packing materials. Similarly, in the area of pharmaceuticals, soft
drinks, etc., lots of new innovations have come in respect of packaging. As a result, the scope for the
marketing of such products has increased.
(4) Product Differentiation: Packaging is one of the very important means of creating product
differentiation. The colour, size, material etc., of the package makes a real difference in the perception of
customers about the quality of the product.
41.Explain the functions of packaging. ( 4 Marks )

Answer:
Functions of Packaging: Packaging performs a number of functions in the marketing of goods. Some of
the Important functions are as follows:
(1) Product identification: Packaging greatly helps in identification of the products. For example, Colgate
in red colour, or Ponds cream jar can be easily identified by its package.
(2) Product protection: Packaging protects the contents of a product from spoilage, breakage, leakage,
pilferage, damage, climatic effect, etc. This kind of protection is required during storing, distribution and
transportation of the product.
(3) Facilitating Use of the Product: The size and shape of the package helps the consumers to handle,
open and use the product conveniently. Cosmetics, medicines and tubes of toothpastes are good examples
of this.
(4) Product Promotion: Packaging is also used for promotion purposes. A startling colour scheme, or
photograph may be used to attract attention of the people at the point of purchase. Sometimes it may
work even better than advertising. In self-service stores, this role of packaging becomes all the more
important.
Question 42.
State any two functions of packaging. ( 2 marks )
Answer:
• Product identification: Packaging greatly helps in identification of the products. For example,
Colgate in red colour, or Ponds cream jar can be easily identified by its package.
• Product protection: Packaging protects the contents of a product from spoilage, breakage,
leakage, pilferage, damage, climatic effect, etc. This kind of protection is required during
storing, distribution and transportation of the product.
109
43.What is labelling? ( 1 Mark )
Answer:
The task in the marketing of goods which relates to designing the label to be put on the package is called
labelling.
44.Explain any four functions performed by a label.

(Or)
Describe the functions of labelling in the marketing of products. ( 4 Marks )
Answer:
Functions performed by a label or functions of labelling:
(1) Describe the product and specify its contents: The label on the package of a brand of coconut oil
describes the product as pure coconut oil with Heena, Amla, Lemon and specifies how these are good for
Hair. One of the most important functions of labels is to describe the product, its usage, cautions in use,
etc. and specify its contents.
(2) Identification of the Product or Brand: The other important function performed by labels is to help in
identifying the product or brand. For example, the brand name of any product, say Biscuits or Potato
Chips imprinted on its package, helps us to identify, from the number of packages, which one is our
favourite brand.
Other common identification information provided by the labels include name and address of the
manufacturer, net weight when packed, manufacturing date, maximum retail price and Batch number.
(3) Grading of Products: Another important function performed by labels is to help grading the products
into different categories.
(4) Helps in Promotion of Products: An important function of labels is to aid in promotion of the
products. A carefully designed label can attract attention and give reason to purchase. We see many
product labels providing promotional messages. For example, the label on the package of a brand of
Detergent Powder says, ‘Keep cloth look good and your machine in top condition’.
Labels play an important role in sales promotional schemes launched by companies. For example, the
label on the package of a Shaving Cream mentions; ‘40% Extra Free’ or package of a toothpaste
mentioning, ‘Free Toothbrush Inside’, or ‘Save Rs.15’.
(5) Providing Information Required by Law: Another important function of labelling is to provide
information required by law. For example, the statutory warning on the package of Cigarette or Pan
Masala, ‘Smoking is Injurious to Health’ or ‘Chewing Tobacco is Injurious to Health.
Thus, labels perform a number of important functions relating to communicating with the potential
buyers and promoting the sale of the products.
45.What is the ‘Price’ of a product? ( 1 Mark )
Answer:
Price is the amount of money paid by a buyer (or received by a seller) in consideration of the purchase of
a product or service.
OR
Price is the exchange value of goods and services expressed in terms of money.
46.What is pricing? ( 2 Marks )

Answer:
Pricing is the process of determining and fixing the price of a product or service. Pricing decision is to be
taken after considering certain factors like product cost, expected profit, competitors price and so on.
47.What is pricing? Explain the factors affecting price determination.

(Or)
What is pricing? Explain the factors affecting determination of the price of a product or service. ( 8
Marks )
Answer:
Pricing is the process of determining and fixing the price of a product or service. Pricing decision is to be
taken after considering certain factors like product cost, expected profit, competitors price and so on.
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Factors affecting price determination:
Some of the important factors which affect the fixation of the price of a product are:
(1) Product Cost: One of the most important factors affecting the price of a product or service is its cost.
This includes the cost of producing, distributing and selling the product. The cost sets the minimum level
or the floor price at which the product may be sold. Generally, all marketing firms strive to cover all their
costs (total of the fixed, variable and semi-variable costs) at least in the long run. In addition, they aim at
earning a margin of profit over and above the costs.
(2) The utility and demand: The utility provided by the product and the intensity of demand of the buyer
sets the upper limit of price which a buyer would be prepared to pay. The buyer may be ready to pay up
to the point where the utility from the product is at least equal to the sacrifice made in terms of the price
paid.
The seller would, however, try to at least cover the costs. According to the law of demand, consumers
usually purchase more units at a low price than at a high price. The price of a product is affected by the
elasticity of demand of the product. If the demand of a product is inelastic, the firm is in a better position
to fix higher prices.
(3) Extent of Competition in the Market: Competitors' prices and their anticipated reactions must be
considered before fixing the price of a product. Not only the price but the quality and the features of the
competitive products must be examined carefully, before fixing the price.
The price to be fixed is affected by the nature and the degree of competition. The price will tend to reach
the upper limit in case there is lesser degree of competition while under conditions of free competition,
the price will tend to be set at the lowest level.
(4) Government and Legal Regulations: In order to protect the interest of the public against unfair
practices in the field of price fixing, the Government can intervene and regulate the price of commodities.
Government can declare a product as an essential product and regulate its price.
(5) Pricing Objectives: Pricing objectives are another important factor affecting the fixation of the price
of a product or a service. Generally the objective is to maximise the profits. If the firm decides to
maximise profits in the short run, it would tend to charge maximum price for its products.
But if it is to maximise its total profit in the long run, it would opt for a lower per unit price so that it can
capture a larger share of the market and earn greater profits through increased sales.
Apart from profit maximisation, the pricing objectives of a firm may include.
(a) Obtaining Market Share Leadership: If a firm’s objective is to obtain a larger share of the market, it
will keep the price of its products at lower levels so that a greater number of people are attracted to
purchase the products.
(b) Surviving in a competitive market: If a firm is facing difficulties in surviving in the market because of
intense competition or introduction of a more efficient substitute by a competitor, it may resort to
discounting its products or running a promotion campaign to liquidate its stock; and
(c) Attaining Product Quality Leadership: In this case, normally higher prices are charged to cover high
quality and high cost of Research and Development.
Thus, the price of a firm’s products and services is affected by the pricing objective of the firm.
(6) Marketing Methods Used: Price fixation process is also affected by other elements of marketing such
as distribution system, quality of salesmen employed, quality and amount of advertising, sales promotion
efforts, the type of packaging, product differentiation, credit facility and customer services provided. For
example, if a company provides free home delivery, it has some flexibility in fixing prices.
Thus, there are many factors which influence the pricing decision.
48.State any two objectives of pricing. ( 2 Marks )

Answer:
Objectives of pricing
• Profit maximisation
• Obtaining market share leadership
• Surviving in a competitive market
• Attaining product quality leadership.
111
49.What do you mean by channels of distribution? ( 2 Marks )
Answer:
Channels of distribution are set of firms and individuals that take title or assist in transferring title, to
particular goods or services as it moves from the producers to the consumers.
OR
Channels of distribution refers to a team of merchants, agents and business institutions that combine
physical movement and title movement of products to reach specific destinations (i.e., consumers).
E.g., Producer- wholesaler- retailer -consumer.
50.What do you mean by channels of distribution? What functions do they play in the distribution of
goods and services? Explain. ( 8 Marks )
Answer:
Channels of distribution are set of firms and individuals that take title or assists in transferring title, to
particular goods or services as it moves from the producers to the consumers.
Channels of distribution refers to a team of merchants, agents and business institutions that combine
physical movement and title movement of products to reach specific destinations (i.e., consumers).
E.g., Producer – wholesaler – retailer – consumer.
Functions of distributive channels in the distribution of goods and services:
Channels of distribution smoothen the flow of goods by creating possession, place and time utilities.
They facilitate movement of goods by overcoming various time, place and possession barriers that exist
between the manufacturers and consumers. The important functions performed by middlemen are as
follows:
(1) Sorting: Middlemen procure supplies of goods from a variety of sources, which are often not of the
same quality, nature, and size. For example, a wholesaler of cashew nuts may procure a large quantity
from different cashew nut producing areas, which would contain nuts of varied quality and sizes. He/She
then sorts the nuts into homogenous groups on the basis of the size or quality.
(2) Accumulation: This function involves accumulation of goods into larger homogeneous stocks, which
help in maintaining continuous flow of supply.
(3) Allocation: Allocation involves breaking homogenous stock into smaller marketable lots. For
example; once cashew nuts are graded and large quantities are built, these are divided into convenient
packs of say 1 kg, 500 gms and 250 gms, to sell them to different types of buyers.
(4) Assorting: Middlemen build an assortment of products for resale. There is usually a difference
between the product lines made by manufacturers and the assortment or combinations desired by the
users. For example, a cricket player may need a bat, a ball, wickets, gloves, helmet, a T-shirt: and a pair
of shoes. Perhaps no one manufacturer produces these products in the desired combination. Middlemen
procure a variety of goods from different sources and deliver them in combinations desired by customers.
(5) Product Promotion: Mostly advertising and other sales promotion activities are organised by
manufacturers. Middlemen also participate in certain activities such as demonstrations, special displays,
contests, etc., to increase the sale of products.
(6) Negotiation: Channels operate with manufacturers on the one hand and customers on the other.
Arriving at deals that satisfy both the parties is another important function of the middlemen. They
negotiate the price, quality guarantee and
other related matters with customers so that transfer of ownership is properly affected.
(7) Risk Taking: In the process of distribution of goods the merchant middlemen take title of the goods
and thereby assume risks on account of price and demand fluctuations, spoilage, destruction, etc.
51.What do you mean by zero level distribution channel? ( 1 Mark )

Answer:
Zero level distribution channel is a channel of distribution where the goods are made directly available
by the manufacturers to customers without involving any intermediary. Here, the manufacturer sells
goods through his own retail outlets e.g. Bata, Raymond’s, McDonalds.
manufacturer → consumer (direct channel or zero level channel).
112
52.State any two indirect channels of distribution. ( 2 Marks )
Answer:
Indirect channels of distribution:
• Manufacturer → Retailer → Customer (One level channel).

• Manufacturer → Wholesaler → Retailer → Customer : (Two level channel)
• Manufacturer → Agent → Wholesaler → Retailer → Customer: (Three level channel)
53.Name any one distribution channel. ( 1 Mark )

Answer:
• Manufacturer → Customer.
• Manufacturer Retailer → Customer
• Manufacturer → Wholesaler → Retailer → Customer
• Manufacturer → Agent → Wholesaler → Retailer → Customer
(Write any one)
54.Name any one middlemen in the channel of distribution.

Answer:
Middlemen in the channel of distribution:
• Wholesaler
• Retailer
(Write any one)
55.Explain any four factors determining the choice of channels of distribution. ( 4 Marks )
Answer:
The factors determining the choice of channels of distribution:
(1) Product related factors: The important product related considerations in deciding the channels include
whether the product is an industrial or a consumer product, whether it is a perishable or a non-perishable
product, what is the unit value of the product and the degree of complexity of the product.
Industrial products require short channels i.e., direct channels or involving few middlemen. Consumer
products can be better distributed by a long network of channels, involving many middlemen. Perishable
products are best sold through short channels, while non-perishable products require longer channels to
react to wide spread consumers.
(2) Company characteristics include the financial strength of the company and the degree of control it
wants to hold on other channel members. If the firm has plenty of funds it may go for direct distribution.
If spare funds are not available, it may go for indirect channels. Similarly if the management wants to
have greater control on the channel members, short channels are used but if the management do not want
more control over the middlemen, it can go in for longer channels.
(3) Competitive Factors: The choice of channel is also affected by the channel selected by competitors in
the same industry. If the competitor’s have selected a particular channel, say Chemist shops for the sale
of toiletry products like hair oil, the other firm may also like to select the similar channel. But it will
depend upon the policy of the firm whether it wants to go with the competitors or be different from them.
(4) Market factors: Important market factors affecting the choice of channel of distribution include size
of market, geographical concentration of potential buyers and quantity purchased. In case the number of
buyers is small, like for most industrial products, short channels are used.
But if the number of buyers is large, as in the case of most convenience products like soft drink,
toothpaste etc., longer channels involving a large number of intermediaries are used. If the buyers are
113
concentrated in a small place, short channels may be used but if the buyers are widely dispersed over a
large geographical area longer channel may be used.
(5) Environmental Factors: Other important factors affecting the choice of channels of distribution
include
environmental factors such as economic conditions and legal constraints. In a depressed economy
marketers use shorter channels to distribute their goods in an economical way.
56.Give the meaning of physical distribution. ( 2 Marks )

Answer:
The physical handling and movement of goods from the place of production to the place of distribution is
referred to as physical distribution.
Important activities involved in physical distribution include transportation, warehousing, material
handling and inventory control.
57.Explain briefly the components of physical distribution.

(Or)
Explain the major activities involved in the physical distribution of products. ( 4 Marks )
Answer:
Physical distribution covers all the activities required to physically move goods from manufacturers to
the customers. Important activities involved in physical distribution (i.e., the main components of
physical distribution) includes:
(1) Order processing: In a typical buyer-seller relationship, order placement is the first step. Order flow
from customers to the manufacturers. A good physical distribution system should provide for an accurate
and speedy processing of orders.
(2) Transportation: Transportation is the means of carrying goods and raw materials from the point of
production to the point of sale. It is one of the major elements in the physical distribution of goods.
(3) Warehousing: Warehousing refers to the act of storing and assorting products in order to create time
utility in them. The basic purpose of warehousing activities is to arrange placement of goods and provide
facilities to store them. The need for warehousing arises because there may be a difference between the
time a product is produced and the time it is required for consumption.
(4) Inventory Control: Linked to warehousing decisions are the inventory decisions which hold key to
success for many manufacturers. A very important decision in respect of inventory is deciding about the
level of inventory. Higher the level of inventory, higher will be the level of service to customers.
58.What is promotion? ( 2 Marks )

Answer:
Promotion refers to the use of communication with the twin objective of informing potential customers
about a product and persuading them to buy it.
OR
Promotion is an important element of the marketing mix by which marketers make use of various tools of
communication to encourage exchange of goods and services in the market.
59.Give the meaning of advertising. ( 2 Marks )

Answer:
Advertising is the most commonly used tool of promotion. It is an impersonal form of communication
which is paid for by the marketers (sponsors) to promote some goods or service.
The most common modes of advertising are newspapers, magazines and television.
60.State any two distinguishing features of advertising. ( 2 Marks )

Answer:
Features of advertising:
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• Paid form: Advertising is a paid form of communication. That is the sponsor has to bear the
cost of communicating with the prospective buyers.
• Impersonality: There is no direct face-to-face contact between the prospective buyers and the
advertiser. It is therefore referred to as an impersonal method of promotion. Advertising
creates a monologue and not a dialogue.
• Identified sponsor: Advertising is undertaken by some identified individual or company, who
makes the
advertising efforts and also bears the cost of it.
61.Explain the advantages (or merits) and limitations of advertising. ( 8 Marks )

Answer:
Advertising is the most commonly used tool of promotion. It is used to promote some goods or services.
Merits or advantages advertising:
Advertising, as a medium of communication to promote sales has the following merits:
(1) Mass reach: Advertising is a medium through which a large number of people can be reached over a
vast geographical area. For example, an advertisement message placed in a national daily reaches lakh of
its subscribers.
(2) Enhancing Customer Satisfaction and Confidence: Advertising creates confidence amongst
prospective buyers as they feel more comfortable and assured about the product quality and hence feel
more satisfied.
(3) Expressiveness: With the developments in art, computer designs, and graphics, advertising has
developed into one of the most forceful mediums of communication. With the special effects that can be
created, even simple products and messages can look very attractive.
(4) Economy: Advertising is a very economical mode of communication if a large number of people are
to be reached. Because of its wide reach, the overall cost of advertising gets spread over numerous
communication links established. As a result the per-unit cost of reach comes low.
Limitations of Advertising:
The following are the limitations of advertising as a tool of promotion:
• Less Forceful: Advertising is an impersonal form of communication. It is less forceful than

the personal selling as there is no compulsion on the prospective buyers to pay attention to the
message.
• Lack of Feedback: The evaluation of the effectiveness of advertising message is very difficult
as there is no
immediate and accurate feedback mechanism of the message that is delivered.
• Inflexibility: Advertising is less flexible as the message is standardised and is not tailor made
to the requirements of the different customer groups.
• Low Effectiveness: As the volume of advertising is getting more and more expanded it is
becoming difficult to make advertising messages heard by the target prospects (customers).
This is affecting the effectiveness of advertising.
The advantages of advertising outweigh the limitations. Hence, it is considered as an important tool of
promotion.
62.State any two advantages and any two limitations of advertising. ( 4 Marks )
Answer:
(1) Mass reach: Advertising is a medium through which a large number of people can be reached over a
vast geographical area. For example, an advertisement message placed in a national daily reaches lakh of
its subscribers.
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(2) Enhancing Customer Satisfaction and Confidence: Advertising creates confidence amongst
prospective buyers as they feel more comfortable and assured about the product quality and hence feel
more satisfied.
(3) Expressiveness: With the developments in art, computer designs, and graphics, advertising has
developed into one of the most forceful mediums of communication. With the special effects that can be
created, even simple products and messages can look very attractive.
(4) Economy: Advertising is a very economical mode of communication if a large number of people are
to be reached. Because of its wide reach, the overall cost of advertising gets spread over numerous
communication links established. As a result the per-unit cost of reach comes low.
63.Explain briefly any four objections against advertising. ( 4 Marks )

Answer:
The opponents of advertising say that the expenditure on advertising is a social waste as it adds to the
cost, multiplies the needs of people and undermines social values.
(1) Adds to cost: The opponents of advertising argue that advertising unnecessarily adds to the cost of the
product, which is ultimately passed on to the buyers in the form of high prices. An advertisement on TV,
for a few seconds, for example, costs the marketers several lakhs of rupees.
(2) Undermines Social Values: Another important criticism of advertising is that it undermines social
values and promotes materialism. It breeds discontent among people as they come to know about new
products and feel dissatisfied with their present state of affairs. Some advertisements show new lifestyles,
which don’t find social approval.
(3) Confuses the Buyers: Another criticism against advertising is that so many products are being
advertised which makes similar claims that the buyer gets confused as to which one should be relied
upon. For example, we may note similar claims of whiteness or stain removing abilities in competing
brands of detergent powder or claims of whiteness of tooth or ‘feelings of freshness’ in competing brands
of toothpaste that it is sometimes confusing to us as to which one to buy.
(4) Encourages sale of inferior products: Advertising does not distinguish between superior and inferior
products and persuade people to purchase even the inferior products.
(5) Some Advertisements are in Bad Taste: Another criticism against advertising is that some
advertisements are in bad taste. These show something which is not approved by some people, say,
advertisements showing women dancing when not required or running after a man because he is wearing
a particular suit or using a particular perfume are certainly not good. Some advertisements distort the
relationship like employer employee and are quite offensive.
(6) Most of the criticisms against advertising are not entirely true. In the changed economic environment
of globalisation, advertising is considered as an important tool of marketing. It helps a firm in effectively
communicating with its target market, increasing the sale and thereby reducing the per unit cost of
production.
It is not a social waste, rather it adds value to the social cause by giving a boost to production and
generating employment.
64.What is personal selling? ( 2 Marks )

Answer:
Oral presentation of a message in the form of conversation with one or more prospective customers for
the purpose of making sales is called personal selling. It is a personal form of communication.
65.State the two features of personal selling. ( 2 Marks )

Answer:
Features of Personal Selling:
• Personal Form: In personal selling a direct face-to-face dialogue takes place between the
seller and the buyer.
• Development of relationship: Personal selling allows a salesperson to develop personal
relationships with the prospective customers.
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66.State any two merits of personal selling. ( 2 Marks )
Answer:
Merits of Personal Selling:
• Flexibility: There is a lot of flexibility in personal selling. The sales presentation can be
adjusted to fit the specific needs of the individual customers.
• Direct feedback: As there is direct face-to-face communication in personal selling, it is
possible to take a direct feedback from the customer and to adapt-the presentation according
to the needs of the prospects, (potential customers)
• Minimum Wastage: The wastage of efforts in personal selling can be minimised as companies
can decide the target customers before making any contact with them.
67.Explain the importance of personal selling to a business organisation (or businessman). ( 8 Marks )
Answer:
Personal selling plays a very important role in the marketing of goods and services.
Importance of personal selling to Businessmen:
Personal selling is a powerful tool for creating demand for a firm’s products and increasing their sales.
The importance of personal selling to a business organisation are:
• Effective Promotional Tool: Personal selling is a very effective promotional tool, which helps
in influencing the prospects about the merits of a product and thereby increasing its sale.
• Flexible Tool: Personal selling is more flexible than other tools of promotion such as
advertising and sales promotion. It helps business persons in adopting their offer in varying
purchase situations.
• Minimises Wastage of Efforts: Compared with other tools of promotion, the possibility of
wastage of efforts in personal selling is minimum. This helps the business persons in bringing
economy in their efforts.
• Consumer Attention: There is an opportunity to detect the loss of consumer attention and
interest in a personal selling situation. This helps a business person in successfully completing
the sale.
• Lasting Relationship: Personal selling helps to develop lasting relationships between the
salesperson and the customers, which is very important for achieving the objectives of
business.
• Personal Rapport: Development of personal rapport with customers increases the competitive
strength of a business organisation.
• Role in introduction stage: Personal selling plays a very important role in the introduction
stage of a new product as it helps in persuading customers about the merits of the product.
• Link with customers: Sales people play three different roles namely persuasive role, service
role and informative role and thereby link a business firm to its customers.
68.Explain the importance of personal selling: (i) to customers ; and (ii) to society. ( 8 Marks )
Answer:
Importance of personal selling to customers:
I. The customers are benefited by personal selling in the following ways:
• Help in Identifying Needs: Personal selling helps the customers in identifying their needs and
wants and in knowing how these can best be satisfied.
• Latest Market Information: Customers get latest market information regarding price changes,
product availability and shortages and new product introduction, which help them in taking
the purchase decisions in a better way. .
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• Expert Advice: Customers get expert advice and guidance in purchasing various goods and
services, which help them in making better purchases.
• Induces customers: Personal selling induces customers to purchase new products that satisfy
their needs in a better way and thereby helps in improving their standards of living.
II. Importance of personal selling to society:
• Converts latent demand: Personal selling converts latent demand into effective demand. It is
through this cycle that the economic activity in the society is fostered, leading to more jobs,
more incomes and more products and services. That is how economic growth is influenced by
personal selling.
• Employment opportunities: Personal selling offers greater income and employment
opportunities to the unemployed youth.
• Career opportunities: Personal selling provides an attractive career with greater opportunities
for advancement and job satisfaction as well as security, respect, variety, interest and
independence to young men and women.
• Mobility of sales people: There is a greater degree of mobility in sales people, which
promotes travel and tourism in the country.
• Product Standardisation: Personal selling increases product standardisation and uniformity in
consumption patterns in a diverse society.
69.State any eight differences between advertising and personal selling. ( 8 Marks )
Answer:
The major differences between advertising and personal selling are as follows:
Differences between Advertising and Personal selling
Advertising :
• Advertising is an impersonal form of communication.

• Advertising involves transmission of standardised messages, i.e., the same message is sent to
all the customers in a market segment.
• Advertising is inflexible as the message can’t be adjusted to the needs of the buyer.
• It reaches masses, i.e., a large number of people can be approached;
• In advertising the cost per person reached is very low.
• Advertising can cover the market in a short time.
• Advertising makes use of mass media television, radio, newspaper, and magazines.
• Advertising lacks direct feedback. Marketing research efforts are needed to judge customer’s
reactions to advertising.
• Advertising is more useful in creating and building interest of the consumers in the firm’s
products.
• Advertising is more useful in marketing to the ultimate consumers who are large in numbers.
Personal selling:
• Personal selling is a personal form of communication.

• In personal selling, the ‘sales talk’ is adjusted keeping in view the customer's background and
needs.
• Personal selling is highly flexible as the message can be adjusted.
• Only a limited number of people can be contacted because of time and cost considerations.
• The cost per person is quite high in the case of personal selling.
• Personal selling efforts take a lot of time to cover the entire market.
• Personal selling makes use of sales staff, which has limited reach.
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• Personal selling provides direct and immediate feedback. Sales persons come to know about
the customers' reactions immediately.
• Personal selling plays an important role at the awareness stage of decision making.
• Personal selling is more helpful in selling products to the industrial buyers or to
intermediaries such as, dealers and retailers who are relatively few in numbers.
70.Give the meaning of sales promotion. ( 2 Marks )

Answer:
Sales promotion refers to short-term incentives such as offering cash discount, sales contests, free gift
offers and free sample distribution, which are designed to encourage the buyers to make immediate
purchase of a product or service. These include all promotional efforts other than advertising, personal
selling and publicity.
71.State two merits of sales promotion. ( 2 Marks )

Answer:
Merits of Sales Promotion:
• Attention value: Sales promotion activities attract attention of the people (because of the use
of incentives).
• Useful in New Product Launch: Sales promotion tools can be very effective at the time of
introduction of a new product in the market.
• Synergy in total promotional efforts: Sales promotion activities are designed to supplement
the personal
selling and advertising efforts used by a firm.
72.State two limitations of sales promotion. ( 2 Marks )

Answer:
Limitation of Sales Promotion:
• Reflects crisis: If a firm frequently relies on sales promotion, it may give the impression that
it is unable to manage its sales or that there are no takers of its product.
• Spoils product image: Use of sales promotion tools may affect the image of a product. The
buyers may start feeling that the product is not of good quality or is not appropriately priced.
73.What are the commonly used sales promotion activities? Explain. ( 8 Marks )
Answer:
Commonly used Sales Promotion Activities.
• Rebate: Offering products at special prices, to clear off excess inventory. Example, a car
manufacturer’s offer to sell a particular brand of car at a discount of Rs. 10,000, for a limited
period.
• Discount: Offering products at less than list price. Example, a shoe company’s offer of
Discount Up to 50% or a shirt marketer’s offer of 40% discount.
• Refunds: Refunding a part of price paid by customer on some proof of purchase say on return
of empty foils or wrapper. This is commonly used by food product companies to boost their
sales.
• Product Combinations: Offering another product as a gift along with the purchase of a
product, say offering a pack of 1/2 kg of rice with the purchase of a bag of Aatta (wheat
flour).
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• Quantity Gift: Offering extra quantity of the product. For example, a shaving cream’s offer of
‘40% extra’. ‘Buy 2 Get 1 Free’ by a marketer of shirts.
• Instant draws and assured gifts: for example, ‘Scratch a Card’ and instantly win a
Refrigerator, Car, T-shirt, Computer, with the purchase of a TV.
• Lucky draw: For example, the offer of a bathing soap to win a gold coin on a lucky draw
coupon.
• Usable Benefit: ‘Purchase goods worth Rs. 3000 and get holiday package worth Rs. 3000
free’ or ‘Get a Discount Voucher for Accessories on Apparel Purchase of Rs. 1000 and
above.’
• Full finance @0%: Many marketers of consumer durables such as Electronic goods,
automobiles etc. offer
easy financing schemes such as “24 easy instalments, eight Up Front and 16 to be paid as Post
Dated Cheques.
• Free samples: Offer of the sample of a product, say a detergent powder or toothpaste to
potential customers at the time of launch of a new brand.
• Contests: Competitive events involving application of skills or luck, say solving a quiz or
answering some questions.
Thus, in addition to personal selling, advertising and publicity, marketers adopt some of the above
mentioned promotional efforts to boost the sales of a firm.
74.As a marketing manager suggest any five sales promotion activities to boost up the sales. ( 5 Marks )
Answer:
As a marketing manager, I suggest the following sales promotion activities to boost up the sales.
• Rebate: Offering products at special prices, say at a discount of Rs. 1,000 per unit for a
limited period.
• Discount: Offering products at less than list price. E.g., offer of 20% Discount.
• Refunds: Refunding a part of price paid by customers on proof of purchase, i.e., on return of
empty wrapper.
• Product combination: Offering another product as gift along with the purchase of a product
e.g., offering a gift of 1 litre cooking oil with the purchase of 5 litre capacity cooker.
• Quantity gift: Offering extra quantity of the product e.g., offering 1 extra shirt free on the
purchase of 2 shirts.
• Instant draws and assured gift.
• Lucky draw
• Usable benefit.
• Offering full finance at 0%.
• Offering free samples.
75.What is publicity? ( 2 Marks )

Answer:
Publicity is a non-personal and non-paid form of communication of some favourable news presented in
the mass media about a product or service. It has more credibility.
76.State the two important features of publicity. ( 2 Marks )

Answer:
The two important features of publicity are:
• Publicity is an unpaid form of communication. It does not involve any direct expenditure by
the marketing firm; and
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• There is no identified sponsor for the communication as the message goes as a news item.
77.Explain any four functions performed by public relations department of an organisation. ( 4 Marks )
Answer:
Functions performed by the public relations department of an organisation.
(1) Press relations: The public relations department is in contact with the media to present true facts and a
correct picture about the company.
(2) Product publicity: The public relations department manages the sponsoring of events which are
necessary to draw attention to new products.
(3) Corporate communication: The public relations department promotes the image of the organisation
through communicating with the public and the employees within the organisation. Speeches by the
company’s executives at a meeting of trade associations or trade fairs can really boost the company’s
image. Even interviews with TV channels and responding to queries from the media go a long way in
promoting public relations.
(4) Lobbying: The organisation has to deal with government officials and different ministers in charge of
corporate affairs, industry, finance with respect to policies relating to business and the economy. The
public relations department is proactive in promoting or decoding regulations that affect them.
(5) Counselling: The public relations department advises the management on general issues which affect
the public and the position the company would like to take on a particular issue.
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CHAPTER 12
CONSUMER PROTECTION
1.State any one unfair trade practice of manufacturers and service providers by which consumers are
exploited. ( 1 Mark )
Answer:
Unfair trade practices of manufactures and service providers:
• Adulteration
• Hoarding
• Black marketing
• Supply of defective and unsafe products
• False and misleading advertising
2.What is consumer protection? ( 2 Marks )

Answer:
Providing adequate legal protection to consumers against unscrupulous, exploitative and unfair trade
practices like adulteration, hoarding, black marketing etc. by sellers is called consumer protection. It
helps the consumers to protect their physical and economic interests.
3.State any two reasons to emphasise the importance of consumer protection from consumers point of
view. ( 2 Marks )
Answer:
Reasons to emphasise the importance of consumer protection from consumer’s point of view:
• Widespread Exploitation of consumers: Consumers might be exploited by unscrupulous,

exploitative and unfair trade practices like defective and unsafe products, adulteration, false
and misleading advertising, hoarding, black marketing etc. Consumers need protection against
such malpractices of the sellers.
• Consumer’s ignorance: The consumers are ignorant and not aware of their rights and reliefs
available to them. Therefore, it is necessary to educate them about their rights to fight against
exploitation.
• Unorganised consumers: As the consumers are not properly organised in the form of
consumer organisations (which protects their rights), they need to be protected.
4.State any two reasons to emphasise the importance of consumer protection from the point of view of
business. ( 2 Marks )
Answer:
Reasons to emphasise the importance of consumer protection from the point of view of business:
• Long term interest of business: Business units are bound to protect the consumer interest by
providing better quality goods and services at reasonable price for their long term profit
maximisation.
• Social responsibility: It is the social responsibility of business to protect the interest of
consumers because they make money by selling goods and services to consumers.
• Government intervention: It is advisable to accept consumer protection in order to avoid
government intervention.
• Business uses society’s resources.
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• Moral justification: It is the moral duty of any business to take care of consumer’s interest.
5.State any one reason (need) for consumer protection. ( 1 Mark )

Answer:
• Widespread exploitation of consumers

• consumers ignorance
(any one)
6.State any one Regulation which provides legal protection to the consumers. ( 1 Mark )
Answer:
The consumer Protection Act, 1986
7.In which year the Consumer Protection Act was passed (enacted)? ( 1 Mark )
Answer:
Consumer Protection Act was passed in 1986.
8.Explain any four rights of consumers. ( 4 Marks )

Answer:
Rights of consumers:
The Consumer Protection Act, 1986 provides for six rights of consumers. They are:
(1) Right to safety: According to this right, the health and life of the consumer is to be protected against
manufacturing and other defects in the food products, medicine, electrical appliances, gas cylinders,
pressure cookers and other similar products and services.
(2) Right to be informed: A consumer has the right to get true and complete information about the
quality, quantity, price, contents, directions for use, date of manufacture and expiry date of the goods and
services which he intends to buy.
(3) Right to choose: The consumer has the right to choose the product of his choice out of the available
alternative
products.
(4) Right to be heard: According to this right, a consumer is allowed to file a complaint and to be heard if
he finds himself exploited or is not satisfied with the goods and services.
(5) Right to seek redressal: Every consumer has the right to seek redressal against any defect or
deficiency in product or service. Eg: Right to get compensation for any loss or injury suffered, right to
seek replacement of goods or removal (repair) of defects in the goods.
(6) Right to consumer education: According to this right, every consumer has the right to be educated
about the consumer rights and the reliefs available to him in case of a product or service falling short of
his expectations.
9.Write any two Consumer Rights. ( 2 Marks )

Answer:
• Right to consumer education: According to this right, every consumer has the right to be
educated about the consumer rights and the reliefs available to him in case of a product or
service falling short of his expectations.
• Right to choose: The consumer has the right to choose the product of his choice out of the
available alternative products.
10.State any four responsibilities of consumers while purchasing, using and consuming goods and
services.
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(Or State any four consumer responsibilities). ( 4 Marks )
Answer:
Consumer responsibilities: A consumer should keep in mind the following responsibilities while
purchasing, using and consuming goods and services.
• Be aware about various goods and services available in the market so that an intelligent and
wise choice can be made.
• Buy only standardised goods as they provide quality assurance. Thus, look for ISI mark on
electrical goods, FPO mark on food products, Hallmark on jewellery etc.
• Read labels carefully so as to have information about prices, net weight, manufacturing and
expiry dates, etc.
• Ask for a cash memo on purchase of goods or services. This would serve as a proof of the
purchase made.
• Be honest in your dealings.
• Choose only from legal goods and services and discourage unscrupulous practices like black-
marketing, hoarding etc.
• Learn about the risks associated with products and services, follow manufacturer’s
instructions and use the products safely.
• Assert yourself to ensure that you get a fair deal.
• File a complaint in an appropriate consumer forum in case of a shortcoming in the quality of
goods purchased or services availed. Do not fail to take an action even when the amount
involved is small.
• Form consumer societies which would play an active part in educating consumers and
safeguarding their interests.
• Respect the environment: Avoid waste, littering and contributing to pollution.
11.Write any two consumer responsibilities. ( 2 Marks )

Answer:
• Ask for a cash memo on purchase of goods or services. This would serve as a proof of the
purchase made.
• Be honest in your dealings.
12.Explain any four ways in which the objective of consumer protection can be achieved. ( 4 Marks )
Answer:
Ways and means of consumer protection: There are various ways in which the objective of consumer
protection can be achieved.
(1) Self-Regulation by Business: Enlightened business firms realise that it is in their long-term interest to
serve . the customers well. Socially responsible firms follow ethical standards and practices in dealing
with their customers. Many firms have set up their customer service and grievance cells to redress the
problems and grievances of their consumers.
(2) Business Associations: The associations of trade, commerce and business-like Federation of Indian
Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII) have laid
down their code of conduct which lay down for their members the guidelines in their dealings with the
customers.
(3) Consumer Awareness: A consumer, who is well-informed about his rights and the reliefs available to
him,
would be in a position to raise his voice against any unfair trade practices or unscrupulous exploitation.
In addition to this, an understanding of his responsibilities would also enable a consumer to safeguard his
interests. In this regard, the Department of Consumer Affairs, GOI, has been undertaking the campaign,
“Jago Grahak Jago” through multimedia awareness.
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(4) Consumer Organisations: Consumer organisations play an important role in educating consumers
about their rights and providing protection to them. These organisations can force business firms to avoid
malpractices and exploitation of consumers.
(5) Government: The government can protect the interests of the consumers by enacting various
measures. For example, the GOI has set up a toll-free national consumer Helpline Number 18001 14000
(9:30 am – 5:30 pm) for this purpose. The legal framework in India encompasses various legislations
which provide protection to consumers.
The most important of these regulations is the Consumer Protection Act, 1986. The Act provides for a
three-tier machinery at the district, state and national levels for redressal of consumer grievances.
13.Name any one redressal machinery / agency set up under Consumer Protection Act to redress
consumer grievances. (1 Mark)
Answer:
• District Consumer Disputes Redressal Forum (or) District Forum

• State Consumer Disputes Redressal Commission (or) State Commission.
• National Consumer Disputes Redressal Commission (or) National Commission.
14.Who is a consumer? (1 Mark )

Answer:
A consumer is a person who uses or consumes goods or avails of any service.
[Under the Consumer Protection Act, a consumer is defined as:
(a) Any person who buys any goods for a consideration, which has been paid or promised, or partly paid
and partly promised, or under any – scheme of deferred payment. It includes any user of such goods,
when such use is made with the approval of the buyer, but does not include a person who obtains goods
for resale or any commercial purpose.
(b) Any person who hires or avails of any service, for a consideration which has been paid or promised,
or partly paid and partly promised, or under any system of deferred payment. It includes any beneficiary
of services when such services are availed of with the approval of the person concerned, but does not
include a person who avails of such services for any commercial purpose.]
15.Who can file a complaint before the appropriate consumer forum? (any four) ( 4 Marks )
Answer:
A complaint before the appropriate consumer forum can be made by:
• Any consumer,
• Any registered consumers association,
• The Central Government or any State Government,
• One or more consumers, on behalf of numerous consumers having the same interest, and
• A legal heir or representative of a deceased consumer.
• A complaint under section 2 (b) of the Consumer Protection Act 1986.
16.Name any one party who can file a complaint with the Redressal Agencies. ( 1 Mark )
(OR)
Who can file a complaint in consumer court?
Answer:
The Central Government or any State Government
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17.What kind of cases can be filed in a state commission? ( 2 Marks )
Answer:
Kind of cases that can be filed in a state commission:
• A case in which the amount of claim exceeds Rs. 20 lakh but limited to Rs. 1 crore, and
• The appeals against the orders of a District Forum.
18.What is the monetary limit of claim in District consumer disputes redressal forum? ( 1 Mark )
Answer:
Monetary limit of claim in District consumer disputes Redressal Forum is to Rs. 20 lakh.
19.State the monetary limit of claim in state Consumer Disputes Redressal Commission. ( 1 Mark )
Answer:
Monetary limit of claim in State Consumer Disputes Redressal Commission is exceeding Rs. 20 lakhs
but to Rs. 1 crore.
20.State the monetary limit of claim in National Consumer Disputes Redressal Commission. ( 1 Mark )
Answer:
The monetary limit of claim in National Consumer Disputes Redressal Commission is claim exceeding
Rs. 1 crore.
21.State any four directions which can be issued by the consumer court to the opposite party. ( 4 Marks )
Answer:
If the consumer court is satisfied about the genuineness of the complaint, it can issue one or more of the
following directions to the opposite party.
• To remove the defect in goods or deficiency in service.

• To replace the defective product with a new one, free from any defect.
• To refund the price paid for the product, or the charges paid for the service.
• To pay a reasonable amount of compensation for any loss or injury suffered by the consumer
due to negligence of the opposite party.
• To pay punitive damages in appropriate circumstances.
• To discontinue the unfair / restrictive trade practice and not to repeat it in the future.
• Not to offer hazardous goods for sale.
• To withdraw the hazardous goods from sale.
• To cease manufacture of hazardous goods and to desist from offering hazardous services.
22.State any four functions of consumer organisations and NGOs for the protection and promotion of
consumer interest.( 4 Marks )
Answer:
Functions (Role) of consumer organisations and NGOs:
Consumer organisations and NGOs perform several functions for the protection and promotion of interest
of consumers. These include:
• Educating the general public about consumer rights by organising training programmes,
seminars and workshops.
• Publishing periodicals and other publications to impart knowledge about consumer problems,
legal reporting, reliefs available and other matters of interest.
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• Carrying out comparative testing of consumer products in accredited laboratories to test
relative qualities of competing brands and publishing the test results for the benefit of
consumers.
• Encouraging consumers to strongly protest and take an action against unscrupulous,
exploitative and unfair trade practices of sellers.
• Providing legal assistance to consumers by way of providing aid, legal advice etc. in seeking
legal remedy.
• Filing complaints in appropriate consumer courts on behalf of the consumers.
• Taking an initiative in filing cases in consumer courts in the interest of the general public, not
for any individual.
23.Name any one consumer organisation / NGO engaged in protecting and promoting consumers
interests.( 1 Mark )
Answer:
Some of the important consumer organisations and NGOs engaged in protecting and promoting
consumers interests include the following:
• Consumer Coordination Council, Delhi.

• Common Cause, Delhi
• Voluntary Organisation in Interest of Consumer Education (VOICE), Delhi.
• Consumer Education and Research Centre (CERC), Ahmedabad.
• Consumer Protection Council (CPC), Ahmedabad.
• Consumer Guidance Society of India (CGSI), Mumbai.
• Mumbai Grahak Panchayat, Mumbai.
• Karnataka Consumer Service Society, Bangalore.
• Consumers Association, Kolkata.
• Consumer Unity and Trust Society (CUTS), Jaipur.
POQ QUESTION AND ANSWERS
1. Assuming that you are the manager of an organisation, draw a neat diagram of different levels
of management to specify that authority responsibility relationships create different levels of
management.
Ans:-
Diagram showing levels of management
127
2. As a general manager, list out any ten Fayol’s principles of Management which you would like to
adopt in your business organisation.
Ans:- As a general manager, I would like to adopt the following ten Fayol’s principles of management in
my organisation.
• Authority and responsibility
• Discipline
• Unity of direction
• Subordination of individual interest to general interest
• Remuneration of employees
• Centralisation and decentralisation
• Scalar chain
• Order
• Equity
• Stability of personnel
• Initiative
• Espirit de corps
3.Show the different elements of the business environment that influence the success of b business
enterprises with a neat diagram.
Ans:- Elements of business environment
128
4. As a manager, what logical steps you follow in the planning process before executing a project.
Ans: - As a manager, I would like to follow the following logical steps in the planning process before
executing a project.
5. Draw the organisation chart showing divisional and functional structure.
Ans: - Organisation chart showing Divisional and functional structure.
129
6.As a HR manager, list out any ten sources of recruitment, to fill in the vacancies in your
organisation.
Ans: -
I Internal sources
1. Transfers 2. Promotions
II External sources
1. Direct recruitment 2)Casual callers
3) Advertisement 4)Employment exchange
5) Placement, agencies and management consultants 6) Campus recruitment
7) Recommendations of employees 8) Labour contractors
9) Advertising on television 10) Web-publishing
7. Draw the neat diagram of Maslow’s need Hierarchy theory.
Ans: - Diagram showing Maslow’s need Hierarchy theory.
130
8. As a manager of an organisation, what are the modern techniques of controlling you would like to
adopt?
Ans:- As a manager of an organisation, I would like to adopt the following modern techniques of
controlling.
1. Return on investment
2. Ratio analysis
3. Responsibility accounting
4. Management audit
5. PERT and CPM
6. Management information system
9. As a financial consultant, give the list of any 10 factors which affect the choice of capital structure.
Ans: - Following is the list of factors which affect the choice of capital structure.
1. Cash flow position
2. Interest coverage ratio (ICR)
3. Debt service coverage ratio (DSCR)]
4. Return on investment (ROI)
5. Cost of debt
6. Tax rate
7. Cost of equity
8. Floatation costs
9. Risk consideration
10. Flexibility
11. Control
12. Regulatory framework
13. Stock market conditions
131
14. Capital structure of other companies.
10. Assuming that you are a promoter of a company and would like to raise capital through the primary
market. What are the various methods of floating new issues available to you?
Ans: - Assuming that I am a promoter of a company and would like to raise capital through primary
market, the following methods of floating new issues are available to me:
1. Offer through prospectus (or public issue)
2. Offer for sale through intermediaries like stock brokers.
3. Private placement to institutional investors and some selected individuals.
4. Right issue to the existing shareholders.
5. e-IPOs through the online system of the stock exchange.
11.As a marketing manager, suggest any five sales promotion activities to boost up the sales.
Ans: - As a marketing manager, I suggest the following sales promotion activities to boost up the sales.
1. Rebate- Offering products at special prices, say at a discount of Rs. 1000 per unit for a limited
period.
2. Discount - Offering products at less than list price. E.g., offer of 20% discount.
3. Refunds - Refunding a part of price paid by customers on proof of purchase, i.e., on return of
empty wrapper.
4. Product combination - Offering another product as gift along with the purchase of a product
e.g., offering a gift of 1 litre cooking oil with the purchase of a 5-litre cooker.
5. Quantity gift - Offering extra quantity of the product e.g., offering 1 extra shirt free on the
purchase of 2 shirts.
6. Instant draws and assured gifts.
7. Lucky draw.
8. Usable benefit.
9. Offering full finance at 0%
10. Offering free samples.
12. As an exploited consumer, write a complaint letter to your nearest District Consumer Forum claiming
reasonable redressal.
From Date 31.02.2022

Harish Kumar
#1234, 3rd Main, 3rd cross,
Rajajinagar,
Bengaluru 560010
To
The President,
District Consumer Disputes Redressal Agency,
Bangalore North District,
Bengaluru 560001
Respected sir,
Sub: Request for compensation in respect of defective washing machine supplied to me by Messrs.
ABC Electronics, Bengaluru.
With reference to the above subject, I would like to bring to your kind notice that I have purchased a
fully automatic washing machine of reputed brand from ABC Electronics, shop situated at #24, M.G.
Road, Bengaluru for Rs.24,000/- on 5th August, 2018.
132
While I was using the washing machine, one day it suddenly stopped functioning. I restarted it, but it still
wouldn’t function. I informed the trader about the malfunctioning of my washing machine. He in turn
reported the matter to the company, asking them to look into the malfunctioning and set it right. He also
gave me the telephone number of the manufacturing company’s service department. I have called them
several times. Later, I sent a letter explaining the situation and informing that it is a newly bought item
with full warranty. Neither the shop which supplied the machine nor the company which manufactured
the washing machine bothered to look into my complaint.
Finally, I decided to approach the consumer forum for redressal of my grievances and against arrogant
behaviour of the shop as well as the manufacturer.
Please find enclosed:

1. Copy of the bill
2. copy of the warranty
3. copies of my letter to the shop and the company
I appeal to the consumer forum to issue notices to the shop and the manufacture, directing them to repair
or replace the manufacturing machine or return the money paid at the time of purchase kindly register the
case, explain about and do the needful and deliver the justice to me.
Thanking you,
Yours faithfully,
Harish Kumar
2nd PUC Business Studies

Model Question Paper
Time: 3Hrs and 15 minutes Maximum marks :100

Instructions to candidates:
1. The question papers contain 5 parts – Part A, Part B, Part C, Part D, and
Part E.
2. Part A consists of 4 sections I, II, III and IV.
3. Write the serial number of questions properly given in the question paper
while answering
4. Write the correct and complete answer
Part-A
I Choose the correct answer 5×1=5

1. Management is
a) An art b) A science c) Both art and science d) Neither
2. Principles of management are not
a) Universal b) Flexible c) Absolute d) Behaviour
3. Which of the following is an example for the single use plan?
a) Policy b) Procedure
c) Budget d) Method
4. A network of social relationship that arise spontaneously due to interaction at work is called
a) Formal Organisation b) Informal Organisation
c) Decentralisation d) Delegation
5. The settlement cycle in NSE is
a) T+5 b) T+3
c) T+2 d) T+1
133
II Fill in the blanks by choosing appropriate word/words from those given in the
brackets. 5×1=5
(Recruitment, Effectiveness, Rule, Treasury bill, Financial planning)
6. -------------means achieving the goals by completing the given task

within the expected time.
7. ------------------ are specific statements that inform what is to be done.
8. The process of finding possible candidates for a job or a function is
known as ----------------
9. The preparation of a financial blueprint of an organization's future
operation is called ---------------
10. ____________ is an instrument of short-term borrowing issued by the
Reserve Bank of India on behalf of the Government of India.
III Match the following 5×1=5

11. A B
a) Delegation i) Grapevine
b) Job Rotation ii) Techniques of managerial control
c) Informal communication iii) Downward transfer of Authority
d) Break even analysis iv) Excess of current assets over current liabilities
e) Working capital v) On the job training.
IV Answer the following questions in one word or one sentence

each. 5×1=5
12. Who is known as the Father of General Management?

13. State any one factors of economic environment which affects business
practices.
14. State any one quality of a good leader.
15. Give the meaning of product.
16. Mention any one regulation which provides legal protection to the
consumers.
Part B
V Answer any Nine of the following questions in two or three sentences each. Each question carries
2 marks. 9X2 =18
17. Define Management.

18. What is a Scalar Chain?
19. State any two features of planning.
20. Differentiate between Delegation and Decentralization by taking any
two factors as basis.
21. State any two limitations of external sources of recruitment.
22. What do you understand about Supervision?
23. What is Budgetary Control?
24. State the twin objectives of Financial Planning.
25. Name the two depositories working in Indian financial markets.
26. How do you describe Marketing Mix?
134
27. Write any two Rights of Consumers.
Part C
VI Answer any Seven of the following questions in 10-12 sentences. Each question carries 4
marks. 7×4=28
28. Explain F.W. Taylor’s Scientific Management Principles

29. Explain any four points to explain how important the understanding of
Business Environment is for the managers.
30. Explain any four limitations of Planning.
31. Explain any four important tests used for the selection of employees.
32. Explain briefly the steps involved in the Controlling Process.
33. Briefly explain any four factors that affect dividend decision of a
company.
34. Explain any four factors affecting Working Capital Requirements of a
business.
35. Explain any four factors that affect the fixation of price of a product.
36. Explain any two advantages and any two limitations of Advertising.
37. State any four responsibilities of consumers while purchasing, using
and consuming goods and services.
Part D
VII Answer any three of the following questions in 20-25 sentences each. Each question carries 8
marks 3×8=24
38. Explain the characteristics of Management.

39. What is Organising? Explain its importance.
40. Explain the four methods of On-the-Job and any four methods of Off-
the-Job Training.
41. Suggest the suitable measures to improve communication effectiveness.
42. Explain the steps involved in the Screen based Trading and Settlement
Procedure of securities.
43. Explain any eight functions of Marketing.
Part E
VIII Answer any two of the following questions. Each question carries 5 marks.
2×5=10
44. Assuming that you are the manager of an organisation, draw the neat
Diagram of different Levels of management to specify that authority-
responsibility relationships create different levels of management.
45. Draw the neat diagram of Maslow’s Need Hierarchy.
46. As a marketing manager suggest any five sales promotion activities to

boost up the sales.
135
136

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NATURE AND SIGNIFICANCE OF MANAGEMENT

1.Give the meaning of management. (OR) What is management? (2 Marks)

2.Define management. (2 Marks)

4.Give the meaning of the term “Effectiveness” in management.

5.What is ‘Effectiveness’ concerned with? (1 Mark)

7.State any two features of management. (2 marks)

1. Management is a goal-oriented process.

8.State any one difference between effectiveness and efficiency. (1 Mark)

9.Explain the characteristics (or features) of management. (8 Marks)

4. Management is a continuous process: Management is a continuous process consisting of a series of

10.State any one feature of management. (1 Mark)

11.State any one dimension of management. (1 Mark)

12.Explain the objectives of management. (8 Marks)

• Protecting the environment by using environmentally friendly methods of production.

• Organisational objectives: e.g., earning of profit

15.State any one social objective of management. (1 Mark)

• Using environmentally friendly methods of production.

16.State any one personal objective of management. (1 Mark)

17.State any two importance of management. (2 Marks)

• Management helps in achieving group goals.

18.State any one importance of management. (1 Mark)

19.“Management is considered to be both an art and a science”. Explain.

Therefore, we can conclude that management is an art.

Management as a science: Science is a systematic body of knowledge. Management is considered to be a

20.Is management a science or an art or both? (1 Mark)

21.What do you mean by levels of management? (1 or 2 Mark)

22.State any two levels of management. (2 Marks)

• Top management e.g., Chairman

23.Give one example for a top-level management position. (1 Mark)

25.Give one example for supervisory management.

26.State any two functions of management. (2 Marks)

27.Briefly explain the functions of management.

It has the following elements:

• Supervision: It involves supervising employees at work.

(5) Controlling: Controlling is the management function of monitoring organisational performance

• Establishing standards of performance.

29.State any one function of management. (1 Mark)

30.Give the meaning of coordination. (2 Marks)

31.Define coordination. (2 Marks)

32.What is coordination? Explain the characteristics of coordination. 8 Marks

Following are the characteristics or features of coordination:

33.State any two characteristics of coordination. (2 Marks)

• Growth in size: As organisations grow in size, it is through proper coordination, management

Multiple choice questions (1 Mark each)

1.Give the meaning of Principles of Management. (2 Marks)

4.State any two characteristics (or features) of principles of management. (2 Marks)

• Universal applicability: Principles of management have universal applicability.

5.State any one characteristic (or feature) of principles of management. ( 1 Mark )

6.What do you mean by ‘universal applicability’ of principles of management? ( 2 Marks )

8.State any two points of significance of principles of management. ( 2 Marks )

9.State any one point of significance of principles of management. ( 1 Mark )

10.Define scientific management. ( 2 Marks )

12.Explain the principles of scientific management.

13.State any two principles of scientific management. ( 2 Marks )

14.State any one principle of scientific management. ( 1 Mark )

15.Explain the functional foremanship of Taylor. ( 4 Marks )

• Instruction card clerk to draft instructions for the workers.

Under production in charge, there must be:

• Speed boss: To ensure timely and accurate completion of job.