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 non business, 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 American mechanical engineer. 8. Which principle of scientific management suggest the introduction of scientific investigation 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. Ans 10. Which principle of management is violated if an employee is asked to receive orders from two superiors? Principle of unity of Command Workers should be encouraged to develop and carry out their plans for improvements. Identify the principle of management formulated by Fayol

Ans 12. Ans 13. Ans 14. Ans 15. Ans 16. Ans 17. Ans 18.

Principle of initiative. It has been observed that the prevailing situation in an organization is due to the violations of the principle of order. What might have been your observation? People and materials are not in suitable places at appropriate time. Which principle of management is violated when a manager grants one month medical leave to a superior with pay and only one week medical leave to an accountant? Principle of equity. Mohan a manager, expects his colleagues to get work out of subordinates without giving them any powers. Which principle of management is being overlooked and why? Principle of parity of Authority and Responsibility. Which principle of management aims at securing the loyalty and devotion of the employees by giving them fair and just treatment? Principle of Equity. Which principle of management envisages that each group of activities having the same objective must have one head and one plan? Explain the principle with suitable example. Unity of Direction If an organization does not provide the right place for physical and human recourses in the organization, which principle is violated? What are its consequences? Principle of Order

The production manager of an automobile company asked the foreman to achieve a target production of 200 units (Scooters) per day. But he did not give him the authority to requisition tools and materials from the store department. Can the production managers blame the foreman if he is not able to achieve the desire target? Explain briefly the principle relating to the situation. Ans No, the production manager can not blame the foreman because he did not give material from the stores department. Since he had no authority, he could not fulfill his responsibility. Also explain principle of Parity of Authority. 19. Ans 20. Name and explain that principle of Fayol which suggest that communication from top to bottom should follow the official lines of command? Principle of Scalar Chain. Identify the technique of scientific management which are described by the statement given below:-

i.

When specialists supervise each worker.

Ans

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 works and working conditions after, due research. 1. Functional Foremanship. 2. Mental Revolution 3. Standardization of works. 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 the same working hour. Which principle of management is violated in this case? Name and explain the principle? Principle of fair remuneration.

21.

Ans

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 in pure science . Comment. Ans: The Principles of Management differ from those used in pure science as they are not rigid like principles of pure science since, they deal 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 by concrnened workers. Whose work is described by this sentence under 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 be modified 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 employees by treating them as fairly as possible? Ans: Principle of equity.

9.What is mental revolution? Ans: Change in attitude of management & workers towards each other. 10 A subordinate receives order from more than one loss . Which principle 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 of iron 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 and the prosperity of the one cannot exist without the prosperity of the other which principle of taylor is being talked about. Ans: harmony not discord. 13.what type of organizational objective is satisfied if an organization provides salary to the workers commensurate with their job? Ans: personal objective 14.the production manager of a company is trying to produce good with minimum cost. Name the concept which is being focused by management. Ans: efficency 15-Hina & Hitesh are typists in a company having the same educational qualification. 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 having same qualification working at same authority level but getting different salaries .(Explain the principle of Equity ). 16-Explain giving reasons under which situations techniques of Taylor are not applicable . [3]

Ans- Some techniques of Taylor are not universally applicable under some situations. These are:(a)Functional Foremanship-This technique is not applicable in the organizations adopting principle of unity of command. b) Differential piece rate system: This technique is not possible in organization following principle of equity. c) Simplification: This technique is not suitable for organizations having objcective of diversification and expansion of line of products and varieties ques: develop a differential piece rate plan for a shirt manufacturing company ans standard target for an average worker 40 shirts in a day wage rate for those who achieve the target rs 10 per shirt wage rate for those who produce less than that rs 8 per shirt ques: an employee is asked to produce 100 units in one weeks time but he is not allowed to take out raw material from the store at the end of the week the employee could not complete his target because of insufficient supply of raw materials .can he be blamed ? which principle is associated with this condition? Explain it ans: no, we cannot blame the employee. The principal associated with this condition is principal of authority and responsibility. (explain this principal) Ques: mohan a manager expects his subordinates to adopt to the new environment and working conditions without giving them time to settle down. 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 subordinates either according to the capability or proportionately which principal of management is overlooked . what can be the consequences? Ans the principal overlooked is the principal of division of work Following can be the consequences 1.lack of efficiency and effectiveness 2.lack of specialization

Part - B

BUSINESS FINANCE AND MARKETING

Chapter 9 Financial Management

1.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 from certain sources. What is this decision called ?
Ans Financing decision
3.A

decision is taken to distribute certain parts of the profit to shareholders after paying tax. What is this decision called? Ans dividend decision 4.Name the source of finance carrying two fixed obligations viz., interest and redemption.
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 as well as the profitability of business.
Ans Capital budgeting decision

7.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 which usually do not have to maintain inventory require less working capital whereas manufacturing industries have to maintain inventory in the form of R/M to finished goods there require more working capital.

8.To avoid the problem of shortage and surplus of funds what is required in financial management? Name the concept and explain its any three points of importance.
8.Ans Financial Planning. Sound financial planning is essential for success of any business enterprise. It is important becausei)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.

9.Ans (i) Cash flow ability (ii) control (iii) Floatation cost iv)Flexibility v)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 an organization. Explain how?
Ans Production cycle is the time span between the receipt of raw material and their conversion 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 higher in firms with longer processing cycle and lower in firms with shorter processing cycle.

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

Ans maximization of shareholders wealth depends upon the market price of shares . Market price 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 lacs additional debentures for expansion of their production capacity. This will lead to an 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 of solvency.

14.A businessman who wants to start a manufacturing cocern, approaches you tosuggest him whether the following manufacturing cocern would require large or small working capital: (a) Bread, (b) Coolers, (C) motor Car.
Ans (a)Bread Requirement of working capital will be less because it has quick cash turnover. (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 the company have asked you to plan the capital structure of the company. State any four 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 Ratio iii)Return on Investment iv)Cost of debt

Tax rate

16.How Stock market conditions affect the capital struceture specially when company is planning to raise additonal capital?
Ans There are two main conditions of stock market i.e., Boom condition and Recession condition. During recession market is slow and investors also hesitate to take risk so at this time it is advisable to issue borrowed funds as they are less risky and ensure fixed repayment and regular interest. But during boom period, business flourishes and investors also take risk and prefer 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/Interest Higher ICR means companies can have more of borrowed fund securities whereas lower ICR means less borrowed fund securities

18.How is Return on Investment computed?

18.Ans Return on Investment= Earnings before Interest and tax/ Total investment

Q1) When is financial leverage considered favorable? Ans) Financial leverage is considered favourable when return on investment is higher than 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 has made a profit. Moreover borrowed fund have to be repaid after a fixed time and it carries a 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 debt 6)Tax rate.

Q7)Every manager has to take three major decisions while performing the finance function. 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 factors affecting such capital needs. Ans) Capital needed for day to day operations is called working capital.{explain any 5 factors affecting such capital needs]. 1)Nature of business 2)Scale of operations 3)Seasonal Factors 4)Production cycle 5)Credit allowed Q9) The directors of a company have decided to expand their business activities by increasing the stock of raw materials and finished goods at an estimated cost of Rs. 50 lakhs, Describe the various ways open to the company to raise necessary finance for the purpose. Ans) the company can raise necessary finance for the purpose of expansion through the following function. a)Issue of shares b)Issue of debentures c)Loans from banks and financial institutions. d)Retained earnings. Q10) A capital budgeting decisions is capable of changing the financial fortune of a business. Do you agree? Why or why not? Ans) hint Yes, I agree to this statement because of the following importance of capitals budgeting decisions. a)long term growth and effects. b)Large amt of funds involved c)Risk involved d)Irreversible decisions. Q11) Are the share holders of a company likely to gain with a debt component in the capital employed ? Explain with the help of an example? Ans) The shareholders of a company are very likely to gain with debt component in the capital employed by way of trading On equity as it increases the earning per share(EPS) of the share holders[( Explain trade on equity with one example)]. Q12) state whether the working capital requirements of business manufacturing the

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 raw material cost to total cost is more. c)Coolers:- working capital required for manufacturers of cooler will be more because it is a seasonal product. d)Furniture:- Requirements of working capital for a manufacturer of furniture manufactured against specific order is less as it doesnt requires large stock. e)Motor car;- Requirements of working capital for a manufacturer of locomotives will be 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 the aspect of financial decision. Ans) Investment decision (Capital Budgeting).

****