Free Business Studies - Class 12th (CBSE) - Sample Paper - SP5

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Class: XII
Subject: BUSINESS STUDIES
Time Allowed: 3 Hours
Maximum Marks: 80

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Question Paper
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CBSE Class 12th Business Studies Question Paper

Question Paper

General instructions:

This question paper contains 34 questions.
Marks are indicated against each question.
Answers should be brief and to the point.
Answers to the questions carrying 3 marks may be from 50 to 75 words.
Answers to the questions carrying 4 marks may be about 150 words.
Answers to the questions carrying 6 marks may be about 200 words.
Attempt all parts of the questions together.

Q1. Match the Levels of Management given in Column I with the functions performed at each level given in Column II:

Column I	Column II
A. Top Level Management	(iii) They are responsible for the welfare and survival of the organisation.
B. Middle Level Management	(ii) They ensure that their department has the necessary personnel.
C. Operational Management	(i) They directly oversee the efforts of the workforce.

Choose the correct option from the following:

A – (i), B – (ii), C – (iii)
A – (iii), B – (ii), C – (i)
A – (iii), B – (i), C – (ii)
A – (ii), B – (iii), C – (i)

Q2. In the ________, a securities account can be opened, all shares can be deposited in it. These can be withdrawn or sold at any time and instruction to deliver or receive shares on behalf of the investor can be given.

Primary market
Stock exchange
Bank
Depository

Q3. From the following, identify the one which is not a function of stock exchange.

Providing liquidity and marketability to existing securities
Spreading of equity cult
Ensuring safety of transactions
Ensuring that there is no scope for speculation

Q4. ‘Maslow’s Need Hierarchy theory’ is based on certain assumptions. Identify the correct statement(s) with respect to these assumptions.

People’s behaviour is based on their needs.
A satisfied need can no longer motivate a person.
People’s needs are in a hierarchical order, starting from basic needs to higher level needs.
A person moves to lower level of need only when a higher-level need is satisfied.

Choose the correct option:

A, B and C
A, B and D
A, C and D
B, C and D

Q5. ‘Basten Ltd.’ supports ten villages with facilities, schools, safe drinking water, health and hygiene. The company sends its employees to visit a nearby village every fifteen days to provide support and to see whether the facilities provided are being implemented on the ground. The objective which ‘Basten Ltd.’ is trying to achieve is:

Personal objective
Social objective
Organisational objective
Economic objective

Q6. Read the following statements carefully:

Statement I: Leadership influences the ability of an individual which influences the behaviour of others.
Statement II: Leadership is exercised to achieve personal goals of the leader.

Choose the correct option from the following:

Statement I is true and Statement II is false
Statement II is true and Statement I is false
Both the Statements are true
Both the Statements are false

Q7. ‘Amul Dairy’ started using environment-friendly ‘Biolona’ method of making ghee, unlike other dairies which were using modern methods involving machines and chemicals. By doing this, Amul Dairy is providing employment to hundreds of illiterate people in the rural areas. Which objective of management is Amul Dairy trying to achieve?

National objective
Social objective
Personal objective
Economic objective

Q8. Most of the organisations these days have adapted themselves to changing environment. To reach and engage with the target customers, they started to have a strong presence on social media like Facebook, Instagram, etc.

From the following, identify the feature of management being highlighted here:

Management is a group activity
Management is a continuous process
Management is multidimensional
Management is a dynamic function

Q9. ________ is concerned with designing jobs that include greater variety of work content, require higher level of knowledge and skill, and give workers more autonomy and providing them opportunity for personal growth and meaningful work experience.

Job security
Perquisites
Employee recognition programme
Job enrichment

Q10. ‘Afoens Infratech’ got a short-term contract for building two villas within a period of ten months with the expectation to earn a huge amount of profit. The Works Manager accepted this challenge and completed the work within the given time period. The profit of the company went up by 40% due to this temporary order. The Finance Manager was aware that the company would not earn this huge profit in the near future. So, he decided to increase dividend per share as earnings for the year had gone up, but not the earnings potential of the company. He also knew that this increase in earnings was temporary in nature. The factor affecting Dividend Decision highlighted above is:

Cash flow position
Shareholder’s preference
Growth opportunities
Stability of dividend

Q11. Choose the incorrect statement with respect to demonetization.

The two largest denomination notes of ₹500 and ₹1000 were demonetized with immediate effect, ceasing to be legal tender except for buying properties.
The aim of this step was to curb corruption and accumulation of black money.
It led to the tax administration channelizing savings into the formal financial system.
Restrictions were placed on the convertibility of domestic money and bank deposits.

Q12. Which of the following statements is not highlighting the importance of financial planning?

It helps in forecasting what may happen under different business situations.
It helps in avoiding business shocks and surprises and helps the company in preparing for the future.
It provides a link between investment and financing decisions on a continuous basis.
Detailed plans of action prepared under financial planning increases waste, duplication of efforts and gaps in planning.

Q13. Read the following statements—Assertion (A) and Reason (R), and choose the correct option from the alternatives given below:

Assertion (A): When the allocative function is performed well, scarce resources are allocated to those firms which have the highest productivity for the economy.
Reason (R): Allocative function allocates or directs funds into the most productive investment opportunity.

Alternatives:

Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A)
Assertion (A) is true, but Reason (R) is false
Assertion (A) is false, but Reason (R) is true

Q14. Due to increasing presence of women in the workforce, ‘Reliance Mart’ comes out every Friday with big discount offers on daily use items to attract office-going women to shop on weekends. Which dimension of business environment is being highlighted in the above case?

Social environment
Legal environment
Political environment
Technological environment

Q15. Vishal, while studying at the university, felt that there should be a food joint in the university campus to provide food to students round the clock. After passing out of college, he set up ‘Food Point’, a food joint with a varied menu ranging from burgers, pizzas, street food and much more, in the university campus. For this, he obtained necessary permissions from the university administration. Since he was the first one to recognize the need for a food joint for all the students in an environment where students study and relax, it soon became a popular eating joint. Within six months, ‘Food Point’ started earning good profits. Identify the point of importance of business environment discussed in the above case.

It enables the firm to identify opportunities and get the first mover advantage.
It helps the firm to identify threats and early warning signals.
It helps in assisting in planning and policy formulation.
It helps in improving performance.

Q16. The legal framework in India requires the manufacturers to provide information about ingredients, date of manufacture, quantity, price, directions for use, etc., on the label of the product.
From the following, identify the consumer right that is satisfied by the firm by fulfilling the requirement:

Right to safety
Right to be informed
Right to be assured
Right to be heard

Q17. Read the following statements carefully:

Statement I: The objective of financial management is to maximize shareholders’ wealth.
Statement II: The shareholders gain if the value of shares in the market increases.

Choose the correct option from the following:

Statement I is true and Statement II is false
Statement II is true and Statement I is false
Both the Statements are true
Both the Statements are false

Q18. To motivate its employees on one side, ‘Anshika Pearls’ rewards them with increase in pay, promotion, recognition, etc. whereas on the other side it scolds, punishes and even demotes them to ensure that they may act in a desired manner. Which feature of motivation is being highlighted in the above case?

Motivation is a complex process
Motivation is an internal feeling
Motivation can be either positive or negative
Motivation produces goal-directed behaviour

Q19. Aarti is working as a teacher in a school in Dilshad Garden. She always tells the children at the school not to pollute the environment, and not to throw wrappers of chips and chocolates here and there. She always ensures she makes her students not litter the wrappers and put them in the dustbin. By doing this, which responsibility of a consumer is she discharging?

Asserting legal rights
Respecting the environment
Being honest in the dealings
Consumer awareness

Q20. Identify from the following, what is depicted in the given picture?

Trade Mark only
Brand Mark only
Brand Name only
Both Brand Name and Brand Mark

Q21. Give the meaning of 'Contract Note' and 'T+2' system in the trading procedure in a stock

exchange.

State any three regulatory functions of Securities and Exchange Board of India. 3

Q22. Shweta Ltd. started an airline to provide good quality air services. For the same, she purchased ten aircrafts. Out of these, two aircrafts would be used to train the pilots. It will help them to achieve proficiency in handling the aircrafts before they would actually fly them.

Identify and explain the method of training discussed above.
State any two advantages the pilots would get from this training.

Q23. Explain any three psychological barriers to communication.

'Directing helps in effective and efficient functioning of the organisation.' Explain this

statement by giving any three points.

Q24. Two ambitious friends, Anu and Darshit, having passion for creating innovative software applications, established a tech startup named 'Instant Solutions'. Their software was developed in such a way that it caters to the needs of all sections. Since its inception, 'Instant Solutions' was earning enough revenue to cover the costs. They faced countless challenges from competing with large and well-established companies. But they learned from their mistakes and continuously improved their product. Slowly, their software gained recognition for its quality and uniqueness and the company started making profits. It was a big incentive for Anu and Darshit for the continued successful operation of the enterprise. Within two years, the customer base increased manifold. Now, Anu and Darshit decided to make additional capital investment and hired more employees. They invested in research and development and expanded their product line to meet emerging market demands. 'Instant Solutions' ultimately became the industry leader because of the tireless efforts of Anu and Darshit. Quoting lines, identify and state the objectives of management discussed in the above case which 'Instant Solutions' seeks to achieve.

Q25. 'Force' is a reputed car manufacturing company, which is going to complete its 75 years in October 2024. The Chief Executive Officer of the company decided to take the company to a higher level. For this, he called a meeting of all departmental heads of the company. In the meeting, the Chief Executive Officer proposed a target to increase sales by 10% and profits by 20% in its Platinum Jubilee year. The Human Resource Manager estimated that an increase of 500 workers would be required to achieve the target. The Finance Manager suggested that the company must hold adequate cash balances for various purposes, and he will prepare a statement showing the estimated cash inflows and outflows for this particular period. Identify and explain two types of plans discussed in the above case.

Q26. State any four functions performed by consumer organisations and non-governmental organisations for protecting and promoting the interest of consumers.

Q27. Pooja successfully runs a bookstore 'Children's Choice' catering to children of the age group 5-15 years. They have the complete range of children's books like activity books, colouring books, fiction and much more. The books are of good quality and are highly appreciated by schools, parents and children. They have 16 stores all over India, where children can not only purchase the books, but can also come and read, and participate in quiz competitions and experience the joy of reading. They have their own well-managed inventory management, storage, and warehousing to deliver books to locations all over India. The bookstore regularly communicates the availability, features, merits, etc. of the books to target customers and persuades them to buy the books. Quoting lines in the situation, identify and explain the two elements of marketing mix in addition to 'Product' highlighted in the above case.

Q28. Manas recently joined as a Human Resource Manager of 'Tata Enterprises'. The company had embarked on a special project for which Manas had appointed twenty new employees. After the employees underwent on-the-job training for a month and had been on the job for some time, there was a need to evaluate their performance against certain pre-determined standards. Not only this, 'Tata Enterprises' had to address the career related issues and promotional avenues for their employees. Manas was designing activities to serve their employees' long-term interests. By doing this, 'Tata Enterprises' had completed the two important steps of staffing process. Identify and explain those steps.

Q29. Explain the following functions of marketing:

Customer Support Services
Product Designing and Development

Explain 'Advertising' and 'Personal Selling' as tools of promotion used by the marketers.

Q30. Explain any four limitations of 'Planning'.

Explain any four points of importance of 'Organising'.

Q31. Mitali runs a chain of famous restaurants, 'Taste of India', in different parts of Delhi.The restaurant chain was known for good quality food and quick service. 'Taste of India' was generating good revenue and had goodwill in the market. Mitali would take a weekly report from all the Restaurant Managers and take necessary action to resolve the problems, if any. Mitali noticed a sudden decline in sales in one of the restaurants. She questioned the Restaurant Manager who mentioned that the restaurant is seeing a gradual decrease in the number of customers but could not provide a clear explanation for it. So, Mitali formed a team to find out the causes of the declining customers as this is the key area for restaurant business and is critical to the success of business. By doing this, Mitali is performing a step of the process of a function of management.

Identify and explain the function of management discussed above.
Explain the step of the function identified in part (a) above, followed by Mitali to find out the causes of declining revenue.
Explain the step Mitali will take after she gets the report from the team formed to find out the causes of declining revenue.

Q32. 'Determining the relative proportion of various types of funds depends upon various factors.'

Explain any six such factors.

"Sound Financial Planning is essential for the success of any enterprise.'' Explain this statement

by giving any six reasons.

Q33. Plexus Technologies Ltd. was a reputed computer software company providing unique software all over India. The turnover of the company was very high resulting in good profits. The Chie Executive Officer, Hemant, was very strict and disciplined. He specified the boundaries of authority and responsibility for achieving organizational goals. There was systematic coordination among the various activities and specific relationships among various job positions. The company provided facilities like a canteen, a gym, a library, a music room, and a rest area for its employees, which they could use during rest intervals. Using these facilities, the employees developed friendships and discussed not only their personal, social and emotional issues, but also the official ones. The General Manager was of a different view. He told the Chief Executive Officer that there was no use providing these facilities to the employees as it is an extra financial burden on the organization on one hand and on the other hand, it encourages groupism and whenever any change is required in the organization, they all resist. He suggested that they should do away with these facilities. But the Chief Executive Officer, Hemant, explained to the General Manager that this type of social interaction is necessary, and is in the best interest of the organization. These interactions among people at work give rise to a network of social relationships among employees and have many benefits.

Identify and explain the type of organisation whose existence the Chief Executive Officer felt was necessary.
State any two advantages and two disadvantages of the type of organisation identified in part (a) above.

Q34. Explain the following techniques of Scientific Management:

Time Study
Method Study
Differential Piece Wage System

Answers

1. (b) A – (iii), B – (ii), C – (i)

2. (d) Depository

3. (d) Ensuring that there is no scope for speculation

4. (a) A, B and C

5. (b) Social objective

6. (a) Statement I is true and Statement II is false

7. (c) Social objective

8. (d) Management is a dynamic function

9. (d) Job enrichment

10. (d) Stability of dividends

11. (a) The two largest denomination notes of ₹500 and ₹1,000 were demonetized with immediate effect, ceasing to be legal tender except for buying properties.

12. (d) Detailed plans of action prepared under financial planning increases waste, duplication of efforts and gaps in planning.

13. (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

14. (a) Social environment

15. (a) It enables the firm to identify opportunities and get the first mover advantage.

16. (b) Right to be informed

17. (c) Both the Statements are true

18. (c) Motivation can be either positive or negative.

19. (c) Respecting the environment

20. (d) Both Brand Name and Brand Mark

21.

Contract Note: Contract note is a document that contains details of the number of shares bought or sold, the price, the date and time of deal and the brokerage charges along with a unique order code assigned to each transaction. After the trade has been executed, within 24 hours the broker issues a Contract Note.
T+2 system: All trading transactions are to be completed within 2 days delivery of shares and payment received from the buyer is on a T+2 basis, settlement period. Cash is paid or securities are delivered on pay-in day, which is before the T+2 day. On the T+2 day, the exchange will deliver the share or make payment to the other broker. This is called the pay-out day.

The three regulatory functions of Securities and Exchange Board of India are:

Registration of brokers and sub brokers and other players in the market
Registration of collective investment schemes and Mutual Funds
Regulation of stockbrokers, 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 (any three)

22.

The method of training discussed here is Vestibule Training. In this training, the employees learn their jobs on the equipment they will be using, but the training is conducted away from the actual work floor. This is usually done when employees are required to handle sophisticated machinery and equipment.
The two advantages of this training to the pilots are:

Improved skills and knowledge due to training lead to better career of the individual
Increased performance by the individual help him to earn more
Training makes the employee more efficient to handle machines thus, less prone to accidents
Training increases the satisfaction and morale of employees (any two)

23. The three psychological barriers to effective communication are:

Premature evaluation: Sometimes the receiver evaluates the message on the basis of his prejudices and preconceived notions, without even listening to the message completely.
Lack of attention: Due to preoccupied mind, sometimes the receiver does not pay attention to the message and fails to listen to it properly.
Loss by transmission and poor retention: There may be loss of content of a message due to its transmission to the various levels. This usually happens when the message is forwarded orally. Poor retention is another barrier wherein, the person does not retain the complete information for a long time, as they are inattentive or are least interested.
Distrust: If the receiver and sender do not trust each other, then the message will not be able to convey its original sense. (any three)

The importance of directing is as follows:

Helps to initiate action: Directing helps to initiate action by people in the organisation towards attainment of desired objectives.
Integrates employees’ efforts: Directing integrates employees’ efforts in the organisation in such a way that every individual effort contributes to the organisational performance. Thus, it ensures that the individuals work for organisational goals.
Helps to bring stability: Effective directing helps to bring stability and balance in the organisation since it fosters cooperation and commitment among the people and helps to achieve balance among various groups, activities and the departments. (or any other relevant point)

24. The objectives of management which ‘Instant Solutions’ seeks to achieve are Organisational objectives, which are:

Survival: The basic objective of any business is to ensure that it continues to survive and exist in the future. An organisation must earn enough revenue to cover the costs. Quote: ‘Since its inception, ‘Instant Solutions’ was earning enough revenue to cover the costs’
Profit: Profit provides a vital incentive for the continued successful operation of the enterprise. Profit is essential for covering costs and risks of the business. Quote: ‘Slowly, their software gained recognition for its quality and uniqueness and the company started making profits’
Growth: Management must exploit the growth potential of the organisation to remain in the industry which can be measured in terms of sales volume, increase in the number of employees. Quote: ‘Now, Anu and Darshit decided to make additional capital investment and hired more employees.’ Or ‘They invested in research and development and expanded their product line to meet emerging market demand’.

25. The two types of Plans discussed here are:

Objectives: Objectives, can be said to be the desired future position or the desired ends that the management would like to reach. These are very basic to the organisation. They are usually set by top management of the organisation and focus on broad, general issues. Objectives need to be expressed in specific terms, i.e., they should be measurable in quantitative terms.
Budget: A budget is a statement of expected results expressed in numerical terms quantifying future facts and figures. It is also a control device from which deviations can be taken care of.

26. The functions performed by consumer organisations and non-governmental organisations for protecting and promoting the interest of consumers are:

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
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 customers 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 complaint in appropriate consumer courts on behalf of the consumers

27.

Place: Place or Physical Distribution include activities that make firm’s products available to the target customers. The other decision areas relate to managing inventory, storage and warehousing and transportation of goods from the place it is produced to the place it is required by the buyers. Quote: ‘They have 16 stores all over India’. or ‘They have their own well-managed inventory management, storage, and warehousing to deliver books to locations all over India’.
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 organisations use number of tools such as advertising, personal selling and sales promotion techniques. Quote: ‘The bookstore regularly communicates the availability, features, merits, etc. of the books to target customers and persuades them to buy the books’.

28. The two steps of staffing that ‘Tata Enterprises’ has completed are:

Performance Appraisal: Performance appraisal means evaluating an employee’s current and/ or past performance as against certain predetermined standards. The employee is expected to know what the standards are and the superior is to provide the employee feedback on his/her performance.
Promotion and career planning: Managers need to design activities to serve employees’ long-term interests also and encourage employees to grow and realise their full potential. Promotions are an integral part of people’s career where an employee is in position of increased responsibility.

29.

Customer Support Services: Customer support services include after sales services, handling customer complaints and adjustments, procuring credit services, maintenance services, technical services and consumer information. These services aim at providing maximum satisfaction to the customers and are very effective in bringing repeat sales from the customers and developing brand loyalty for a product.
Product Designing and Development: The design of the product contributes to making the product attractive to the target customers. A good design can improve performance of a product and also give it a competitive advantage in the market.

Advertising: Advertising is an impersonal form of communication, which is paid for by the marketers (sponsors) to promote some good or service. The most common modes of advertising are ‘newspapers’, ‘magazines’, ‘television’, and ‘radio’.
Personal Selling: Personal selling involves oral presentation of message in the form of conversation with one or more prospective customers for the purpose of making sales. It is a personal form of communication. The companies appoint salespersons to contact prospective buyers and create awareness about the product and develop product preferences with the customers.

30. The limitations of ‘Planning’ are as follows:

Leads to rigidity: The existence of a plan puts managerial activities in a rigid framework. Programmes are carried out according to the plan and deviations are considered to be highly undesirable. This attitude makes managers and employees inflexible in their operation. They become more concerned with observance of rules and procedures as laid down in the plan rather than achieving the goals.
Reduces creativity: People in the organisation just implement the orders made by top management. They blindly implement the orders which results in loss of initiative and interest in them. Thus, planning reduces creativity as there is nothing new or innovative.
Involves huge costs: Huge costs are involved in the formulation of plans which may not justify the benefits derived from the plans. Money is spent on incidental costs like expenses on boardroom meetings, discussions with professional experts etc.
Time consuming: It is a time consuming process and is not practicable during emergency or crisis. It requires a lot of time to collect information, its analysis and interpretation before preparing plans. Sometimes not much time is left for implementation of plans.
May not work in a dynamic environment: The organisation has to continuously adapt itself to the changing environment. Any unforeseen change in the business environment upsets the whole planning.
Does not guarantee success: Generally, managers rely on the previously tried and tested successful plans as these have worked before but there are so many unknown factors to be considered. This kind of relying on plans blindly may lead to failure instead of success. (any four)

The importance of ‘Organising’ is as follows:

Benefits of specialisation: Through organising, jobs are allocated amongst the workforce. It ensures that the specific worker performs specific job on a regular basis, which allows him to gain experience in that area and leads to specialisation.
Clarity in working relationships: Organising leads to the formation of organisational structure, which clarifies the authority-responsibility positions among individuals in the organisation. The path of flow of communication and accountability relationship is also specified.
Optimum utilisation of resources: The proper assignment of jobs avoids overlapping of work and makes the best possible use of the resources. The wastage of resources and efforts is minimised due to avoidance of duplication of work.
Adaptation to change: Organising allows a business enterprise to accommodate changes in the business environment and pave its way to smooth transition. The organisational structure can be suitably modified and inter-relationship among managerial levels can be revised. It gives stability to the organisation as it continues to survive and grow in spite of many changes.
Effective administration: Organising clarifies the working relationships and description of jobs. Thus, it enables proper execution of work. Management of an enterprise becomes easy and brings effectiveness in administration.
Development of personnel: Organising enables a manager to share his responsibilities with his subordinates through delegation. The manager develops new methods and ways of performing a task. It gives him time to explore areas for growth and opportunity to innovate and strengthen the company’s competitive position. It also helps the subordinates to realise their full potential.
Expansion and growth: Organising helps in making the organisation capable of expanding and developing. It makes the company efficient by utilising existing resources and also helps the organisation to improve its competitive strength.

31.

The function of Management discussed here is Controlling. It means ensuring that activities in an organisation are performed as per the plans.
The step followed by Mitali to find out the falling of revenue is analysing deviations. Some deviation in performance can be expected in all activities. Critical point control and management by exception should be used by a manager in this regard.

Critical Point Control: Control should, therefore, focus on Key Result Areas (KRAs) which are critical to the success of an organization. If anything goes wrong at the critical points, the entire organisation suffers.
Management by Exception: An attempt to control everything results in controlling nothing. Thus, significant deviations which go beyond the permissible limits should be brought to the notice of management. However, in case of major deviation from the standard the matter has to receive immediate action of management on a priority basis.

The step Mitali will take 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.

32. The relative proportion of various types of funds in capital determine our capital structure. Following are the factors affecting the choice of capital structure are:

Cash flow position: The size of projected cash flow must be considered before deciding the type of fund in capital. The cash flow should be sufficient to cover fixed cash payment obligations, leaving sufficient buffer to cover the other investments and committed obligations of the business, if the company chooses debt financing.
Cost of Equity: The stock owners assume more risk as compared to the borrowers of the business, so they expect more rate of return from their investments. Hence, equity is costlier. When a company increases debt, the financial risk faced by equityholders increases and consequently their desired rate of return also increases. For this reason, a company can not use debt recklessly, though it is cheaper than equity.
Floatation cost: The floatation cost is the cost of raising funds from the market, be it equity or debt. This cost is to be considered before choosing the source of fund. Getting a loan from a financial institution may not cost so much, so this consideration affects the choice of capital structure.
Stock market conditions: In the case of bullish stock market, equity shares can be easily issued even at higher prices. The companies issue more of equity in such a situation. During a bearish phase, a company finds it difficult to raise funds through equity and thus may opt for debt.
Control: Equity shares give its holders a right to vote. So, when more equity shares are issued it causes a dilution of management’s control in the company. It makes a company vulnerable to takeovers. This factor influences the choice between debt and equity especially in a company where the current holding of management is on lower side.
Flexibility: If a firm uses its debt potential to the full, it loses flexibility to issue further debt. To maintain flexibility, it must maintain some borrowing power to take care of unforeseen circumstances.

The statement highlights the importance of financial planning. These are:

It helps in forecasting different business situations taking into account all future possibilities.
It helps in avoiding business shocks and surprises and in preparing for the future.
It helps in coordinating various business functions by providing clear policies.
It provides a link between the financing and investment decisions on a continuous basis.
It helps in preparing detailed plans of action, thus, reducing waste and duplication of efforts.
It helps in detailed objectives for various business segments, making evaluation of actual performance easier.

33.

The Chief Executive Officer felt that informal organisation was necessary. It is a ‘network of social relationships among employees’. It emerges from within the formal organisation when people interact beyond their officially defined roles.
The two advantages of informal organisation are:

As prescribed lines of communication are not followed it leads to faster spread of information as well as quick feedback.
It helps to fulfil the social needs of the members and gives them a sense of belongingness in the organisation.
It contributes towards fulfilment of organisational objectives by compensating for inadequacies in the formal organisation. (any two)

The two disadvantages of informal organisation are:

An informal organisation spreads rumours and it becomes a destructive force.
The management may not be successful in implementing changes if the informal organisation opposes them.
It pressures members to conform to group expectations which may be against organisational interests. (any two)

34.

Time Study: It determines the standard time taken to perform a well-defined job. The objective of time study is to determine the number of workers to be employed; frame suitable incentive schemes and determine labour costs.
Method Study: It is the study to find out one best way of doing the job. The objective is to minimise the cost of production and maximise the quality and satisfaction of the customer.
Differential Piece Wage System: It is a technique which differentiates between efficient and less efficient workers. It rewards the efficient workers and motivates the less efficient ones to improve their efficiency. In this plan, there are two piece rates – one for those workers who produce the standard output or more, and the other for those who produce less than the standard output.

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Below are the links to more sample papers:

CBSE Class 12th Business Studies Sample Paper - SP5

Free Business Studies - Class 12th (CBSE) - Sample Paper - SP5

CBSE Class 12th Business Studies Question Paper

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