cHAPER 2_9-ropar

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STUDY MATERIAL

Subject: Business Studies

CLASS XII

Chapter -2

PRINCIPLES OF MANAGEMENT

1. How re principles of management formed?Ans: They are formed by practice and experimentation.

2. Why is it said that the principles of management are universal?Ans :Because they can be applied to all types of organization :- business as well as nonbusiness, small as well as large, public sector as well as private sectors.

3. Why is it said that principles of management are flexible?Ans : Because they can be modified by the managers when the situation so demands.

4. Which principles of management promotes team spirit.?Ans :- Esprict De Corps.

5. Who was the first to identity functions of management?Ans :-Henri Payol.

6. Which principle of management suggests that a subordinate should receive orders

from and be accountable to one superior?Ans : Principle of Unity of command.

7. Who gave the concept of scientific management? What was his profession?Ans F.W.Taylor gave the concept of scientific management and he was an Americanmechanical engineer.

8. Which principle of scientific management suggest the introduction of scientificinvestigation and analysis of management practice?

Ans Science, not rule of Thumb.9. What is the basis of formation of scientific management?Ans Observation & Experimentation.

9. Which principle of management is violated if an employee is asked to receiveorders from two superiors?

Ans Principle of unity of Command

10. Workers should be encouraged to develop and carry out their plans forimprovements. Identify the principle of management formulated by Fayol


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Ans Principle of initiative.

12. It has been observed that the prevailing situation in an organization is due to theviolations of the principle of order. What might have been your observation?

Ans People and materials are not in suitable places at appropriate time.

13. Which principle of management is violated when a manager grants one monthmedical leave to a superior with pay and only one week medical leave to anaccountant?

Ans Principle of equity.

14. Mohan a manager, expects his colleagues to get work out of subordinates withoutgiving them any powers. Which principle of management is being overlooked andwhy?

Ans Principle of parity of Authority and Responsibility.

15. Which principle of management aims at securing the loyalty and devotion of theemployees by giving them fair and just treatment?

Ans Principle of Equity.

16. Which principle of management envisages that each group of activities having thesame objective must have one head and one plan? Explain the principle withsuitable example.

Ans Unity of Direction

17. If an organization does not provide the right place for physical and humanrecourses in the organization, which principle is violated? What are itsconsequences?

Ans Principle of Order

18. The production manager of an automobile company asked the foreman to achievea target production of 200 units (Scooters) per day. But he did not give him theauthority to requisition tools and materials from the store department. Can theproduction managers blame the foreman if he is not able to achieve the desiretarget? Explain briefly the principle relating to the situation.

Ans No, the production manager can not blame the foreman because he did notgive material from the stores department. Since he had no authority, he could not fulfillhis responsibility. Also explain principle of Parity of Authority.

19. Name and explain that principle of Fayol which suggest that communication fromtop to bottom should follow the official lines of command?

Ans Principle of Scalar Chain.

20. Identify the technique of scientific management which are described by thestatement given below:-


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i. When specialists supervise each worker.

ii. Change in the attitude of workers and management towards one another.From competition to

Co-operation.

iii.When uniformity is introduced in materials. Machine, tools, method of worksand workingconditions after, due research.

Ans 1. Functional Foremanship.2. Mental Revolution3. Standardization of works.

21. Hina & Harish are typist in a company having same educational qualification.Hina is getting Rs.3000 per month and harish Rs. 4000 per month as salary far thesame working hour. Which principle of management is violated in this case?

Name and explain the principle?Ans Principle of fair remuneration.


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Principles of Management

1.State the two methods through which management principles have

been derived.Ans: a) Observation method

b) Experimental method

2.What is the objective of fatigue study?Ans: To find out .

a) The number of rest intervals.b)The frequency of rest intervals.c) The duration of rest interval.

3.The Principles of management are different from those used inpure science . Comment.Ans: The Principles of Management differ from those used in purescience as they are not rigid like principles of pure science since, theydeal with human behavior which is unpredictable.

4.Who Suggested the concept of functional foremanship?Ans: F.W.Taylor.

5.Rohit keeps machines,materials,tools etc,ready for operations byconcrnened workers. Whose work is described by this sentenceunder functional foremanship?

ans: Gang Boss

6.What is meant by flexibility of principles of management?Ans: The principles of management are not rigid. They can bemodified by the manager when the situation so demands.

7.What is the latest development in scientific management?Ans: Lean Manufacturing.

8.Which principle of management ensures fairness to all employeesby treating them as fairly as possible?

Ans: Principle of equity.


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9.What is mental revolution?Ans: Change in attitude of management & workers towardseach other.

10 A subordinate receives order from more than one loss . Whichprinciple in violated?

Ans: Unity of command.

11.Name the founder of gender theory of management?Ans: Henry Fayol.

11.according to taylor even a small production activity like loading pigs ofiron into boxcars can be scientifically planned and managed which

principle of his is emphasized here?

Ans: sciencse not rule of thumb

12.the true intentions of management and workers are one and the same andthe prosperity of the one cannot exist without the prosperity of the otherwhich principle of taylor is being talked about.Ans: harmony not discord.

13.what type of organizational objective is satisfied if an organizationprovides salary to the workers commensurate with their job?Ans: personal objective

14.the production manager of a company is trying to produce good withminimum cost. Name the concept which is being focused bymanagement.Ans: efficency

15-Hina & Hitesh are typists in a company having the same educationalqualification. Hina is getting Rs3000 per month $ Hitesh is getting Rs 4000

per month as salary for the same work hours .Which principle of

management is violated in this case? Name the principle $ explain it. [3]Ans -In this case the Principle of Equity is violated .As both are havingsame qualification working at same authority level but getting differentsalaries .(Explain the principle of Equity ).

16-Explain giving reasons under which situations techniques of Taylor arenot applicable . [3]


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Ans- Some techniques of Taylor are not universally applicable under somesituations. These are:-(a)Functional Foremanship-This technique is not applicable in theorganizations adopting principle of unity of command.

b) Differential piece rate system: This technique is not possible inorganization following principle of equity.c) Simplification: This technique is not suitable for organizations havingobjcective of diversification and expansion of line of products and varieties

ques: develop a differential piece rate plan for a shirt manufacturingcompanyans standard target for an average worker 40 shirts in a day wage rate forthose who achieve the target rs 10 per shirt wage rate for those who produceless than that rs 8 per shirt

ques: an employee is asked to produce 100 units in one weeks time but he isnot allowed to take out raw material from the store at the end of the week theemployee could not complete his target because of insufficient supply of rawmaterials .can he be blamed ? which principle is associated with thiscondition? Explain itans: no, we cannot blame the employee. The principal associated with thiscondition is principal of authority and responsibility.(explain this principal)

Ques: mohan a manager expects his subordinates to adopt to the newenvironment and working conditions without giving them time to settledown. Which principle is being overlooked.Ans the principle overlooked is principle of stability of tenure

Ques: mohan a manager does not distribute the work among his subordinateseither according to the capability or proportionately which principal ofmanagement is overlooked . what can be the consequences?Ans the principal overlooked is the principal of division of work

Following can be the consequences1.lack of efficiency and effectiveness2.lack of specialization

Part - B


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BUSINESS FINANCE AND MARKETING

Chapter 9

Financial Management1.A company wants to establish a new unit in which a machinery worth Rs.10 lakhs is

involved. Identify the type of decision involved in financial management.

1.Ans Investment decision

2.A decision is taken to raise money for long term capital needs of the business fromcertain sources. What is this decision called ?

Ans Financing decision

3.A decision is taken to distribute certain parts of the profit to shareholders afterpaying tax. What is this decision called? Ans dividend decision

4.Name the source of finance carrying two fixed obligations viz., interest andredemption.

Ans Debentures

5.Incase of inflation, does an enterprise need more or less of the working capital?

Ans More working capital

6.Identify the decision taken in financial management which affects the liquidity aswell as the profitability of business.

Ans Capital budgeting decision7.State why the working capital needs for a service industry are different from that of

a manufacturing industry.

7.Ans Nature of business determines the working capital needs . Service industries whichusually do not have to maintain inventory require less working capital whereasmanufacturing industries have to maintain inventory in the form of R/M to finished goodsthere require more working capital.

8.To avoid the problem of shortage and surplus of funds what is required in financialmanagement? Name the concept and explain its any three points of importance.

8.Ans Financial Planning. Sound financial planning is essential for success of any businessenterprise. It is important because-

i)it facilitates collection ;of optimum funds.ii)It helps in fixing the most appropriate capital structure .iii)It helps in investing finance in right projects.

9.State the factors which affect the capital structure of a company.


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9.Ans (i) Cash flow ability(ii) control(iii) Floatation costiv)Flexibilityv)Market condition

10.Why is Financial Planning done?

10.Ans It is done to achieve following two objectives i)To ensure availability of funds whenever these are required.ii)To see that firm does not raise resources unnecessarily.

11. Length of Production cycle affects the working capital requirements of anorganization. Explain how?

Ans Production cycle is the time span between the receipt of raw material and theirconversion into finished goods. Duration and length of production cycle affects the amount of

funds required of R/M and expenses. Consequently the working capital requirement is higherin firms with longer processing cycle and lower in firms with shorter processing cycle.

12.Primary objective of financial management is to maximize the wealth ofshareholders. Explain.

Ans maximization of shareholders wealth depends upon the market price of shares . Marketprice of equity share increase if the benefits from a decision exceeds the cost involvcd

13.The directors of a manufacturing company are thinking of issuing Rs. 20 lacsadditional debentures for expansion of their production capacity. This will lead toan increase in debt-equity ratio from 2:1 to 3:1. What are the risks involved in it?

Ans The increase in debt-equity ratio from 2:1to 3:1 is subject to following risks-

(a) Interest on debt has to be paid even when the company is not making sufficient profits.(b) The debebtureholders have charge over the assets of the company so there is threat ofsolvency.

14.A businessman who wants to start a manufacturing cocern, approaches youtosuggest him whether the following manufacturing cocern would require large orsmall working capital: (a) Bread, (b) Coolers, (C) motor Car.

Ans (a)Bread Requirement of working capital will be less because it has quick cashturnover.(b)Coolers Require of working capital will be more because it is a seasonal product.(c)Motor car Working capital requirement will be more.

15.You are the finance manager of a newly established company. The directors of thecompany have asked you to plan the capital structure of the company. State anyfour factors that you would consider while planning the capital structure.

Ans Following factors would be considered for the purpose (i) Cash Flow Position(ii) Interest Coverage Ratioiii)Return on Investmentiv)Cost of debt


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Tax rate

16.How Stock market conditions affect the capital struceture specially when companyis planning to raise additonal capital?

Ans There are two main conditions of stock market i.e., Boom condition and Recessioncondition.During recession market is slow and investors also hesitate to take risk so at this time it isadvisable to issue borrowed funds as they are less risky and ensure fixed repayment andregular interest. But during boom period, business flourishes and investors also take risk andprefer to invest in equity shares to earn more in the form of dividend.

17. How is Interest Coverage Ratio computed? What does it indicate?

Ans Interest Coverage Ratio= Earnings before interest and tax/InterestHigher ICR means companies can have more of borrowed fund securities whereas lower ICRmeans less borrowed fund securities

18.How is Return on Investment computed?

18.Ans Return on Investment= Earnings before Interest and tax/ Total investmentQ1) When is financial leverage considered favorable?Ans) Financial leverage is considered favourable when return on investment is higherthan the cost of debt.

Q2) why does financial risk arise?Ans) Interest on borrowed fund have to be paid regardless of whether or not you firm hasmade a profit. Moreover borrowed fund have to be repaid after a fixed time and it carriesa charge on assets. This gives rise to financial risk.

Q3) How does production cycle effect working capital?Ans) working capital requirement is higher with longer production cycle.

Q4) Enumerate two objectives of financial management?Ans) (a)To ensure availability of required funds.(b) to see that the firm does not raise resources unnecessarily.

Q5)What is the primary objectives of financial management?Ans) Wealth Maximisation.

Q6) The board of Directors has asked you to design the capital structure of the company.

Explain any sin factors that you would consider while doing so. [6]Ans) For design the capital structure of the company six factors are as following:-1)Cash Flow Position.2)Interest coverage ration(ICR)3)Debt Service coverage ratio(DSCR)4)Return on investment (ROI)5)Cost of debt6)Tax rate.


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Q7)Every manager has to take three major decisions while performing the financefunction. Explain them.Ans) A manager take three following major decisions:-

1)financing Decision.

2)Investment Decision.3)Dividend Decision.

Q8) What do you call the capital needed for day to day operations? Explain any 5 factorsaffecting such capital needs.Ans) Capital needed for day to day operations is called working capital.{explain any 5factors affecting such capital needs].

1)Nature of business2)Scale of operations3)Seasonal Factors4)Production cycle

5)Credit allowed

Q9) The directors of a company have decided to expand their business activities byincreasing the stock of raw materials and finished goods at an estimated cost of Rs. 50lakhs, Describe the various ways open to the company to raise necessary finance for thepurpose.Ans) the company can raise necessary finance for the purpose of expansion through thefollowing function.

a)Issue of sharesb)Issue of debenturesc)Loans from banks and financial institutions.d)Retained earnings.

Q10) A capital budgeting decisions is capable of changing the financial fortune of abusiness. Do you agree? Why or why not?Ans) hint Yes, I agree to this statement because of the following importance of capitalsbudgeting decisions.

a)long term growth and effects.b)Large amt of funds involvedc)Risk involvedd)Irreversible decisions.

Q11) Are the share holders of a company likely to gain with a debt component in thecapital employed ? Explain with the help of an example?Ans) The shareholders of a company are very likely to gain with debt component in thecapital employed by way of tradingOn equity as it increases the earning per share(EPS) of the share holders[( Explain tradeon equity with one example)].

Q12) state whether the working capital requirements of business manufacturing the


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following items are big or small. Justify your statement.(a) Coolers (c) Sugar (b)bread (d) Locomotives(e) Furniture manufacturing against orders.

Ans) Requirements of working capital for the mentioned business will be:a)Bread Requirements of working capital will be less because it has quick cash

turnover.b)Sugar;- working capital required for manufacturers will be more as ration of rawmaterial cost to total cost is more.

c)Coolers:- working capital required for manufacturers of cooler will be morebecause it is a seasonal product.

d)Furniture:- Requirements of working capital for a manufacturer of furnituremanufactured against specific order is less as it doesnt requires large stock.

e)Motor car;- Requirements of working capital for a manufacturer of locomotives willbe more because gestation period is more.

Q13) What do you mean by floatation cost?

Ans) Cost uncured for raising funds.

Q14) Name any 2 sources of long term fund?Ans) (a) Debt.

(b) Equity

Q15) What is Business Finance?Ans) Money required for carrying out business activities is called business finance.

Q16) A decision to acquire a new and modern plant to upgrade an old one. Identify theaspect of financial decision.Ans) Investment decision (Capital Budgeting).

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