SAMPLE QUESTION PAPER - 4

BUSINESS STUDIES (054)

CLASS XII (2024-25)

Time Allowed: 3 hours Maximum Marks: 80

General Instructions:
1. This question paper contains 34 questions.
2. Marks are indicated against each question.
3. Answers should be brief and to the point.
4. Answers to the questions carrying 3 marks may be from 50 to 75 words.
5. Answers to the questions carrying 4 marks may be about 150 words.
6. Answers to the questions carrying 6 marks may be about 200 words.
7. Attempt all parts of the questions together.
1. Ravi is the Managing Director of Ionn Ltd., manufacturing different varieties of [1]
cheese. He has an efficient team working under him consisting of Lalit at, the
Production manager, Varun - the Marketing manager and Abhay - the Finance
manager. They understand and interpret the policies made by Ravi, ensure that their
departments have adequate manpower, assign them the necessary duties and motivate
them to achieve the desired objectives. Identify the level of management they are
working.

a) Top Level Management b) Operational Management

c) All of these d) Middle Level Management

2. Money market instruments issued on behalf of the Central Government: [1]

a) Treasury Bill b) Commercial Paper

c) Call Money d) Commercial Bill

3. What are certain assumptions about the future on the basis of which the plan will be [1]
ultimately formulated?

a) Method premises b) Management premises

 c) Planning Premises d) Esteem needs

4. What out of the following is the effect of optimal capital structure? [1]

a) Increase in the value of equity b) Increase in shareholders wealth

share

c) All of these d) Low financial risk

5. An efficient control system helps to [1]

a) Accomplishes organisational b) Judges accuracy of standards

objectives

c) All of these d) Boosts employee morale

6. Identify the principle of management followed in the following pictorial [1]

representation.

a) Initiative b) Division of Work

c) Equity d) Remuneration

7. Sensex is dependent on ________ companies. [1]

a) 100 b) 50

c) 500 d) 30

8. Mega Enterprises is a company manufacturing water geysers. The company has a [1]
functional structure with four main functions-Production, Marketing, Finance and
Human Resource. As the demand for the product grew, the company decided to hire
more employees. Identify the concept which will help the Human Resource Manager
in deciding the actual number of persons required in each department.
 a) Estimating manpower b) Workload Analysis
requirements

c) All of these d) Workforce Analysis

9. Which of the following statement is false? [1]

a. Service industries require less working capital.
b. Working capital requirement is higher in firms with shorter processing cycle.
c. A liberal credit policy results in larger working capital requirement.
d. Larger the lead time, larger shall be the amount of working capital required.

a) option (b) b) option (c)

c) option (a) d) option (d)

10. Assertion (A): Decentralization is an optional policy decision. [1]

Reason (R): It is done at the discretion of the top management.

a) Both A and R are true and R is b) Both A and R are true but R is
the correct explanation of A. not the correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

11. Adapting to a change in consumer preference towards online shopping, Fast-Service [1]
started a grocery delivery app. It is a platform that ensures 10-minute deliveries of
groceries. Because of this service, Fast-Service earned huge profit within a year. It
planned to expand its operations and decided to raise funds by directly issuing its
securities to investors.
The market through which Fast-Service has decided to raise funds for its expansion
is:

a) Money market b) Both Primary and Secondary

markets

c) Secondary market d) Primary market

12. Rajnish is the finance manager of Jupiter Ltd. In the current year, the company earned [1]
high profit. However, Rajnish thinks that it is better to declare smaller dividend as he
 is unsure about the earning potential of the company in the coming years. Rajnish’s
choice of dividend decision is based on which of the factor that affect it?

a) Shareholders’ preference b) Stability of Earnings

c) Cash Flow Position d) Stability of Dividends

13. Statement I: The Consumer Protection Act 2019 has replaced the Act 1986 and seeks [1]
to widen its scope in addressing consumer concerns.
Statement II: The Consumer Protection Act 2019 provides for Setting up of
Consumer Mediation Cell to ensure faster dispute settlements by respective
commissions.

a) Statement II is correct and b) Both the Statements I and II are

Statement I is not correct. not correct.

c) Both the Statements I and II are d) Statement I is correct and

correct. Statement II is not correct.

14. Elpis Ltd. has a plan of increasing profits by 20%. It has devoted a lot of time and [1]
money to this plan. But the competition starts increasing, so it could not change its
plan to beat its competitors because huge amount of money had already been devoted
to the pre-decided plan. It caused losses to the company.
Identify the limitations of planning highlighted in the above case.
a. Planning is a time consuming process.
b. Planning leads to rigidity.
c. Planning reduces creativity.
d. Planning is a costly process.

a) c and d b) b and c

c) d and a d) a and b

15. Why is working capital important? [1]

a) To make payment for routine b) To buy building

expenses
 c) To buy machine d) To buy land

16. Statement I: Labelling helps in promotion of the products; and provides information [1]
required by law.
Statement II: Pricing is the single most important factor affecting the revenue and
profits of a firm.

a) Statement II is correct and b) Both the Statements I and II are

Statement I is not correct. not correct.

c) Both the Statements I and II are d) Statement I is correct and

correct. Statement II is not correct.

17. In 2019 alone, Swiggy has launched operations in 300 towns and cities. Swiggy [1]
follows a two-step sequence while expanding to a small town. First, it provides more
laborious training to restaurants and delivery partners compared to their counterparts
in the city. Second, it focuses on building scale in operations and increase the
restaurant’s reach to a larger base of consumers, including optimizing kitchens,
resource planning among others.
Identify the type of plan being described in the above lines.

a) Procedure b) Method

c) Programme d) Strategy

18. Match the following activities in column I with their respective levels of management [1]
in column II:
(i) Introducing a new product line and deciding the
(a) Top Management
capital structure of the company.
(b) Middle Management (ii) Recruitment of casual labourers.
(c) Supervisory or (iii) Devise a suitable advertising campaign to sell a
Operational Management new product/service a company is launching.

a) (a) - (i), (b) - (iii), (c) - (ii) b) (a) - (iii), (b) - (ii), (c) - (i)

c) (a) - (ii), (b) - (i), (c) - (iii) d) (a) - (i), (b) - (ii), (c) - (iii)
19. The firm’s ability to borrow at a lower rate increases its capacity to employ higher [1]
debt. The factor affecting choice of capital structure referred to is:

a) Floatation cost b) Control

c) Cost of equity d) Cost of debt

20. Controlling is related to ________. [1]

a) Results b) Managers

c) Individuals d) Things

21. Paras Mining Industry owns and operates coal mines in different parts of the country. [3]
It employs thousands of workers who do this dangerous and potentially lethal job.
Several miners contend with air filled with dust, develop asthma and other respiratory
problems. Many times, fatal accidents take place due to insufficient safety measures.
Garbage from the mines is often dumped in local rivers, which pollute the water
bodies.
Identify and state any two management objectives which are being ignored by Paras
Mining Industry.

22. Explain Supervision and Communication as elements of directing function of [3]

management.

OR
Explain any three measures to overcome the barriers to improve communications
effectiveness.

23. State any three factors that determine the requirements of working capital of a [3]
company.

24. Govind purchased a book from a book-seller and got the cash memo of ₹400 which he [3]
paid for the book. Later, he found that the actual price of the book is ₹380 but the
book-seller had put a sticker of ₹400 on the original price. Can Govind recover the
extra money that he paid? What other options are available to him against book-seller
if he is refused to give the extra money he paid?

OR
 Consumer protection has a wide scope. Justify the statement.

25. Explain policy and procedure as types of plan. [4]

OR
What do you mean by planning premises?

26. Describe briefly the steps in the process of controlling. [4]

OR
PQR Ltd. is engaged in manufacturing machine components. The target production is 200
units per day. The company had been successfully attaining this target until two months
ago. Over the last two months, it has been observed that daily production varies between
150 - 170 units.
a. Identify the management function to rectify the above situation.
b. Briefly state the procedure to be followed so that the actual production may come up to
the target production.

27. Devender and Rakhi both are friends. Both have completed their MBA course. [4]
Currently, they are employed, at an equal level, in a multi-national company.
Devender is Deputy Manager in Kidswear Division and Rakhi is Deputy Manager in
Ladieswear Division. Mr. Raghu Parsad is their boss. In order to please his boss,
Devender always plays the role of Yes Man. On the other hand, Rakhi says Yes only
for reasonable matters. She unhesitatingly refuses any wrong action of her boss. At the
end of the year, when the performance of both of them was evaluated, then Rakhi s
performance stood better than that of Devender. In spite of all this, Mr. Parsad decided
to promote Devender. Behind this decision, the consideration of the boss was: being a
lady, Rakhi will not be able to take as yet the responsibility of a higher post. So, let her
stay where she is at present.
a. Identify which Principle of Management has been violated by the company.
b. Quoting the lines, identify those values which have been ignored in the above
paragraph.

28. ‘Supervision is an important element of directing function’. Explain any four reasons [4]
in support of the above statement.

29. Differentiate between Primary Market and Secondary Market on the following basis: [4]
 a. Company involvement
b. Price determination
c. Location
d. Capital formation

30. Explain the following rights of a consumer as per the provisions of Consumer [4]
Protection Act, 2019:
i. Right to safety
ii. Right to be heard

31. Explain the various steps in the Process of Staffing function of management. [6]

OR
Nishant, the director of a garment company, is planning to manufacture bags for the
utilization of waste material from one of his garments unit. He has decided that his
manufacturing unit will set-up in a rural area of Odisha where people have very few job
opportunities and labour is available at very low rates. He also thought of giving equal
opportunities to men and women. For this, he wanted four different heads for sales,
accounts, purchase, and production. He gave an advertisement and shortlisted ten
candidates per post after conducting different selection tests.
a. Identify and state the next three steps for choosing the best candidate out of the
shortlisted candidates.
b. Also, identify two values that Nishant wants to communicate to society by setting up
this manufacturing unit.

32. ‘Singhal Printers Limited’ is a famous company of Printing Industry. Its main business [6]
is to print the Greeting Cards of Deepavali, Eid, Christmas, Gurpurb and other
festivals. The Greeting Cards of this company are well known throughout India. The
Government made such changes in its Tax Policy recently which have had a positive
impact on the Printing Industry. One negative factor noticed with regard to this
Industry is that now people have started preferring internet and mobile to Greeting
Cards on festivals and other occasions. Similarly, it has also been noticed that in
Printing Industry only those companies are earning profits which have adopted
modern technology.
Recently, the new Central Government of the country decided to establish Industrial
Estate in the name of Printing Club’ for the development of this industry. Also a
decision to simplify the process of Industrial Disputes of Printing Industry in the
country was taken. The Managing Director of ‘Singhal Printers Limited’ made a
through study of the business environment. He arrived at the conclusion that the
business environment is a group of not one but several factors. All these factors affect
business in some or the other form. Business has no control over them. Business has to
mould itself in accordance with them. The companies which follow this principle stay
in the market for a long time and the remaining ones disappear from the market
gradually.
a. Identify the different dimensions of business environment described in the
paragraphs given above by quoting the relevant lines.
b. Which particular feature of business environment is being hinted/referred to here?

OR
On Your Marks is a good shoe manufacturing company. The company is the first to start a
shoe having a unique technology giving it a long life. However the company knows that it
exists in an environment where everything around it counts; so everything around it
matters. Therefore, it is trying to observe every small aspect of the business environment.
There are various factors which are closely related to each other and can't be understood in
isolation like change in lifestyle which can be linked to the improved demand of
technologically advanced shoes. However, the company can't be self satisfied. It will have
to adjust to rapidly changing technology, fragmentation of market, changing brand
loyalties, etc. It has got good man power and a very well established production
department. It knows that various resources in the form of inputs have to be transformed
into the best products and sold for increasing its revenue. However, there are various
challenges which the company is facing. These are in the form of protests done by labour
unions throughout the country which sometimes assume the form of strikes. The board of
directors is keen to adapt to this difficult situation. Government is playing a very positive
role, like it did a few years back, and is freeing the business environment from
unnecessary restrictions and government controls. The company is hopeful of emerging as
a winner under such government support.
i. Which features of business environment are highlighted in the above case?
ii. Identify the importance of business environment highlighted in the above case?
iii. Which dimension of business environment is highlighted above?
 iv. Which economic reform is discussed in the last part of the case?

33. A company manufacturing sewing machines set up in 1945 by the British promoters [6]
follows formal organisation culture in totality. It is facing lot of problems in delays in
decision making. As the result it is not able to adapt to changing business
environment. The work force is also not motivated since they cannot vent their
grievances except through formal channels, which involve red tape. Employee
turnover is high. Its market share is also declining due to changed circumstances and
business environment. You are to advise the company with regard to change it should
bring about in its organisation structure to overcome the problems faced by it. Give
reasons in terms of benefits it will derive from the changes suggested by you.

34. Advertisement is an important business activity. On the one hand, it makes available to [6]
the people information regarding different new and old products and on the other, it is
also a source of living for many persons. Impressed by these traits of advertisement
Tanu, Manu and Sanchit, three students of Class-XII made up their mind to go ahead
with project work on an advertisement. All the three conversed with the people about
advertisement. Each one of them, on the basis of his survey, concluded as under:
i. Tanu opined that advertisement costs get transferred to consumers in the form of
high prices.
ii. Manu was of the opinion that advertisement showed reality in a twisted form.
iii. Sanchit maintained that advertisement was turning people from reality to
artificiality.
a. What do the above remarks about advertisement hint at? Clarify it.
b. Identify two values that advertisement presents to society.
 SOLUTION
SAMPLE QUESTION PAPER - 4
BUSINESS STUDIES (054)
CLASS XII (2024-25)
1.
(d) Middle Level Management
Explanation:
Middle Level Management
2. (a) Treasury Bill
Explanation:
Treasury Bill issued by RBI on behalf of Central Government.
3.
(c) Planning Premises
Explanation:
Planning Premises are certain assumptions about the future on the basis of which the plan
will be ultimately formulated
4.
(c) All of these
Explanation:
The capital structure of a company affects both the profitability and the financial risk. A
capital structure will be 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. In other words, all decisions relating
to the capital structure should emphasize increasing the shareholders’ wealth.
5.
(c) All of these
Explanation:
Employees have the clarity of goals to be achieved thus, making it clear and easy for
performance, Organisational objectives are stated, thus making the employee set up
achievable standards towards achieving the organizational goals. Thus, an efficient control
system is able to achieve better results in terms of organizational goals, employee morale and
motivation,clarity in standards and setting up of achievable standards.
6.
(b) Division of Work
Explanation:
Division of Work
 7.
(d) 30
Explanation:
SENSEX is dependent on 30 companies
8.
(b) Workload Analysis
Explanation:
Workload Analysis
9. (a) option (b)
Explanation:
Working capital requirement is higher in firms with shorter processing cycle.
10. (a) Both A and R are true and R is the correct explanation of A.
Explanation:
Both A and R are true and R is the correct explanation of A.
11.
(d) Primary market
Explanation:
Primary market
12.
(d) Stability of Dividends
Explanation:
Stability of Dividends
13.
(c) Both the Statements I and II are correct.
Explanation:
Both the Statements I and II are correct.
14.
(d) a and b
Explanation:
a and b
15. (a) To make payment for routine expenses
Explanation:
To make payments of day to day expenses.
16.
(c) Both the Statements I and II are correct.
 Explanation:
Both the Statements I and II are correct.
17.
(d) Strategy
Explanation:
Strategy is the type of plan being described in the question.
18. (a) (a) - (i), (b) - (iii), (c) - (ii)
Explanation:
(a) - (i), (b) - (iii), (c) - (ii)
19.
(d) Cost of debt
Explanation:
Cost of debt
20. (a) Results
Explanation:
Controlling is a goal-oriented function. The controlling function measures progress towards
the organization goals and bring to light the deviations, if any and indicate corrective action.
Controlling helps the organization to achieve desired results.
21. i. Personal Objectives- Personal objectives of management are concerned with satisfying
diverse needs of the employees such as-
Financial needs by giving them competitive salary and perks.
Social needs like peer recognition, and
Higher level needs like personal growth and development.
ii. Social Objectives- Social objectives of management involves consistently creating
benefits or economic value for various constituents of society.
22. Supervision:
It means overseeing what is being done by subordinates and giving instructions to ensure
optimum utilisation of resources and achievement of work targets. supervision is done by the
experienced worker over unexperienced worker.
Communication:
Communication is defined as a process of exchange of information, ideas, views, facts,
feelings, etc., between two or more persons to create common understanding.
OR
The three measures to overcome the barriers to improve communications effectiveness are:
 1. Clarify the areas before communication: Before communicating to employees a manager
should make an analysis of the subject matter.
2. Communicate according to the needs of receiver: The manager should make adjustments
according to the needs of the receiver.
3. Consult others before communication: A manager should encourage participation of
subordinates which will ensure their support and cooperation.
23. Factors affecting the working capital requirement of the company:
i. Nature of Business: Influences working capital requirements in a trading organisation
which usually needs a smaller amount of working capital compared to a manufacturing
organisation, while service industries that generally do not have to maintain inventory
require less working capital.
ii. Scale of operations: This influences working capital requirements in large organisations,
which require a large amount of working capital compared to organisations that operate on
a lower scale. scale of operation directly relates with the requirement of the working
capital of the organisation.
iii. Business cycle: Affects the firm's working capital requirement, as in the case of a boom, a
larger amount of working capital is required compared to the period of depression.
24. Govind is a responsible consumer since he has got the Cash Memo for the book he
purchased. Cash memo is the proof of purchase. If there is any defect in goods purchased or
deficiency in services hired, consumer must have a cash memo to file the complaint in the
appropriate consumer court. So, Govind can recover the extra money he paid (₹20) from the
bookseller.
If the book-seller refused to give back ₹20, Govind can file a complaint against the book-
seller in the District commission and get reliefs, such as
i. refund of the price paid for the book (₹400),
ii. payment of adequate costs incurred for filing the complaint.
OR
Consumer protection has a wide scope.
It not only includes educating consumers about their rights and responsibilities, but also
helps in getting their grievances redressed.
It not only requires a judicial machinery for protecting the interests of consumers but also
requires the consumers to be united and form themselves into consumer associations for
protection and promotion of their interests.
Providing protection to consumers against unscrupulous, exploitative and unfair trade
practices of traders, manufacturers and service providers.
25. Policy
These are the general guidelines which bring uniformity in decision making.
It can be defined as an organisation's general response to a particular problem or
situation.
Policies are made at every level because the managers at every level need to decide or
predetermine the way of handling a situation.
These act as a guide to take decisions in an unexpected situation.
For example, a school may have a policy of giving admission to the students who have
secured more than 60% marks.
Procedure
These are those plans which determine the sequence of any work to be performed.
They are specified in chronological order.
Procedures are designed to execute policies and achieve objectives.
For example, the procedure may be for the purchase of raw material, selection of
employees, redressal of grievances, etc.
OR
While making plans every manager has to make certain assumptions related to the future.
These assumptions are known as premises.
Planning premises are assumptions relating to future conditions and events which are
likely to have an effect on the achievement of organizational goals.
These are the bases upon which the entire structure of planning is built.
Every plan is drawn with certain assumptions. To make planning effective, it is necessary
that the premises should be based on accurate forecasts..
For example, demand for a product, the cost of raw materials, interest rates, state of
technology, the intensity of competition, government policies etc.
26. Controlling Process consists of following systematic steps:
1. Setting Performance Standards:
The first step in the process of controlling is concerned with setting performance standards.
These standards are the basis for measuring the actual performance.
Thus, standards act as a lighthouse that warns & guides the ships at sea. Standards are the
benchmarks towards which efforts of entire organisation are directed. These standards can be
expressed both in quantitative and qualitative terms.
2. Measurement of Actual Performance:
 Once the standards have been determined, the next step is to measure the actual performance.
The various techniques for measuring are sample checking, performance reports, personal
observation etc. However, in order to facilitate easy comparison, the performance should be
measured on same basis that the standards have.
3. Comparing Actual Performance with Standards:
This step involves comparing the actual performance with standards laid down in order to
find the deviations. For example, performance of a salesman in terms of unit sold in a week
can be easily measured against the standard output for the week.
4. Analyzing Deviations:
Some deviations are possible in all the activities. However, the deviation in the important
areas of business needs to be corrected more urgently as compared to deviation in
insignificant areas. Management should use critical point control and management by
exception in such areas.
5. Taking Corrective Action:
The last step in the process of controlling involves taking corrective action. If the deviations
are within acceptable limits, no corrective measure is required. However, if the deviations
exceed acceptable limits, they should be immediately brought to the notice of the
management for taking corrective measures, especially in the important areas.
OR
a. The controlling function of management is needed to rectify the above situation.
b. The procedure to be followed so that the actual production may come up with the target
production is as follows:
i. Establish standards to measure performance.
ii. Measure actual performance.
iii. Compare performance with the standards.
iv. Take corrective actions..
27. a. In this case, ‘Principle of Equity’ has been ignored. According to the principle, the
managers should treat their subordinates in a just and kind manner.
b. Values that have been ignored:
i. Good human behaviour: In order to please his boss, Devender, always plays the role of
“Yes Man.”
ii. Gender Equality: Inspite of all this, Mr. Parsad decided to promote Devender, Behind
this decision, the consideration of the boss was, being a lady, Rakhi will not be able to
take as yet, the responsibility of a higher post. So let her stay where she is at present.
28. Importance of Supervision/Functions of Supervisor:
1. Ensures Issuing of Instructions:
The supervisor makes sure that all the instructions are communicated to each and every
employee. The top level and middle level, plan out all the instructions but the instructions are
issued only by supervisory level management.
2. Optimum Utilisation of Resources:
When the workers are constantly monitored or observed then they always use the resources in
the best possible manner which leads to minimum wastage. But if there is no supervision or
check on workers they may result in wastage of resources.
3. Discipline:
The strict supervision and guidance of supervisor encourages the employees and workers to
be more disciplined in their activities. Under the guidance of supervisor the workers follow a
fixed or strict time-table and execute the plans in right directions.
8. Maintain group unity:
Supervisor plays a key role in maintaining group unity among workers working under him he
maintains harmony among workers by solving their disputes.
29. Difference between Primary Market and Secondary Market:
Basis Primary Market Secondary Market
Ownership of existing securities is
(a) Company Securities are sold by the
exchanged between investors; company
Involvement company to the investors.
is not involved.
(b) Price Prices are determined by the Prices are determined by the forces of
Determination management of the company. demand and supply of securities.
(c) Location No fixed location. Located at specified places.
(d) Capital Directly promotes Capital Indirectly promotes Capital formation in
Formation formation in the country. the country.
30. i. Right to safety A consumer has a right to be protected against goods and services which
are hazardous to life and health. For instance, electrical appliances which are manufactured
with sub-standard products do not conform to the safety norms, might cause serious injury.
Therefore, the companies should manufacture the product by taking into consideration the
quality and safety features of the product and the product must bear a standard safety mark
like ISI and AGMARK. Thus, consumers are educated that they should use electrical
 appliances which are ISI marked, as this would be an assurance of such products meeting
quality specifications
ii. Right to be heard A consumer has a right to file a complaint and to be heard in case of
dissatisfaction with regard to a good or service. It is because of this reason that many
enlightened business firms have set up their own consumer service centers and grievance
cells. Many consumer organizations are also working towards this direction and helping
consumers in redressal of their grievances. Consumers must become vigil towards this fact
that in case they are cheated, then they can seek justice by approaching the grievance cells.
31. Steps in the process of staffing function of management:
i. Estimating Manpower requirements
ii. Recruitment and Selection
iii. Placement and orientation
iv. Training and development
v. Performance appraisal, Promotion and career planning
vi. Compensation paid to employees according to their job works.
OR
i. The next three steps to be followed by Nishant in the selection process after giving
advertising and shortlisting ten candidates per post after conducting different selection
tests are as follows:
a. Employment Interview: It is a face-to-face interaction between the interview and
prospective candidates. It involves a formal, in-depth conversation that is conducted to
evaluate the applicant's suitability for the job.
b. Reference and Background Checks: At the time of filling up of the job application
form the prospective candidates are required to provide names, addresses, and telephone
numbers of references for the purpose of verifying the information and gaining
additional information about him/her.
c. Selection Decision: The final decision about the selection is made from among the
candidates who pass the test and interview.
ii. The two values that Nishant wants to communicate to society by setting up this
manufacturing unit are:
a. Rural development
b. Gender equality
32. The dimensions are as follows:
i. Economic Environment: Economic Environment consists of factors like inflation rates,
interest rates, consumers’ incomes, economic policies, market conditions etc. which affect
 the performance of a business firm.
a. Interest Rates: Changes in the interest rates greatly affect the demand for goods and
services. For example, low long term rates on home loans are beneficial for banks and
consumers both.
b. Consumer Income: Increase in the incomes of the consumers leads to increase in their
purchasing power. Hence, demand for goods and services rises.
c. Inflation Rate: High inflation rate increases the cost of production and hence puts
constraints on firms.
ii. Social Environment: Social environment implies traditions, literacy rates, educational
levels, values, customs, lifestyle, demographic distribution and other characteristics of the
society in which the organization exists. Traditions mean customs or social practices that
have passed on from one generation to another. Values mean standards that a society holds
in high esteem e.g., freedom, social justice, equal opportunities etc. which are cherished by
us all. Changes in social environment affect the demand for a product, supply of labour
and capital. If a business fails to adapt to such changes, its survival becomes difficult.
Cooperation between business and society can make business boom (WIN-WIN) whereas
confrontation between them may lead to disaster (LOSS-LOSS). Cooperation between
business and society will see business boom and will help in the growth of professional
managers as well as the country whereas failure of any business organization in adapting
itself to changes in the social environment will lead to dissatisfaction amongst its
customers and rejection)of its products. This shift of demand can ever endanger the very
survival of that business.
iii. Technological Environment: The forces related to scientific improvements and innovations
for improving quality of goods and services and new techniques for operating the business,
are all part of technological environment. It includes new approaches, new procedures and
new equipments to transform inputs into outputs. It facilitates an organization’s efficiency
and effectiveness so that it can try to remain at par with the best in the world.
Technological changes provide opportunities for some enterprises and become threats for
some others. For example, digital watches killed the business prospects of traditional
watches, TV has adversely affected radio and cinema industry, mobile phones have taken
over the market from landline phones.
iv. Political Environment: Political Environment consists of forces such as political stability
and peace in the country and attitude of the ruling party and its representatives towards
business. These forces significantly affect the functioning of business. Whenever there is
political stability, it increases the confidence of businessmen whereas political instability,
adversely affects the business. For example even after opening of our economy inl991,
many foreign companies found it very difficult to enter the Indian market because of
‘Bureaucratic Red Tape’. As a result, many of these companies got discouraged from doing
business in India.
v. Legal Environment: Legal environment consists of rules and regulations, framed by the
Parliament, under which business must operate. To exist and grow, business is required to
follow all the rules and regulations that constitute this environment. Legal Environment
includes different laws passed by the government, administrative orders issued by
government authorities, courts and also various ‘recommendation made by various
commissions agencies at three levels of the government – central, state, local. It is very
essential for the management of any business firm to obey these rules and regulations for
smooth functioning of the business.
 The particular feature of business environment referred to here is Uncertainty: It is very
difficult to predict the changes of Business Environment. As environment is changing very
fast for example in IT, fashion industry frequent and fast changes are taking place.
OR
The features of business environment highlighted in the above case are:
i. Totality of external forces: However, the company knows that it exists in an environment
where everything around it counts; so everything around it matters.
ii. Inter-relatedness: There are various factors which are closely related to each other and
can't be understood in isolation like change in lifestyle which can be linked to the
improved demand of technologically advanced shoes.
The importance of business environment highlighted in the above case:
i. It helps in coping with rapid changes. It will have to adjust to rapidly changing technology,
fragmentation of market, changing brand loyalties, etc.
ii. It helps in tapping useful resources. It knows that various resources in the form of inputs
have to be transformed into the best products and sold for increasing its revenue.
The dimension of business environment which is highlighted in the above case is Political
Environment. These are in the form of protests done by labour unions throughout the
country and about to assume the form of strikes.
The economic reform which is discussed in the last part of the case is Liberalisation.
Government is playing a very positive role, like it did a few years back, and is freeing the
business environment from unnecessary restrictions and government controls.
33. The major change that is required to correct the situation is to move away from a complete
formal organisation structure and allow for some informal structure. An informal
structure is a network of social relationships that arise out of personal interactions among
employees of an organisation beyond their officially defined roles.
An informal structure would benefit the organisation in the following manner.
As no definite path or channel of communication is followed, information spreads faster.
An informal organisation allows for personal communication beyond the officially
defined roles. This unofficial interaction provides a sense of belongingness among the
employees towards the organisation and towards each other. This helps in lowering the
employee turnover.
An informal organisation supports the working of formal organisation, thereby helps in
fulfilment of organisational objectives in a better manner.
The company can diversify in other sewing related products as better and technologically
advanced sewing machines, machines with advance features such as embroidery.
34. a. The remarks in the above paragraph hint at objections against the advertisement.
According to all the three participants in the project work, the main disadvantages of
advertisement are as under:
i. It Adds to Costs: An organisation has to spend a huge amount on advertisement. It
increases the cost of the products. To meet the expenditure, the price of the product is
raised. No manufacturer pays for advertising expenses out of his Advertising, therefore,
it leads to an unnecessary rise in prices. In this regard, it is said that advertising costs are
passed on to the consumers in the form of high prices.
ii. It Confuses the Buyers: Many a time distorted version of reality is depicted in the
advertising. Under the influence of advertisements, consumers go in for the product.
When they use it, they feel cheated. Then they realize that the information given in the
advertisement about the product was quite different from the actual product. In this way,
advertisement states people's confidence in it. Therefore, it is said that advertising
confuses consumers rather than helping them.
iii. It undermines Social Values: Advertisement is a kind of day-dreaming for the people.
It drives people away from reality into the realm of artificiality. Through its medium
people are regularly informed about new products. Only very few products of any worth
for them. The brilliance of new products overwhelms them. They are tempted to buy
them but lack the necessary resources. Consequently, they feel frustrated with their lot.
Considering it a social evil, it can be said that advertisement undermines social values.
b. Values:
i. Adds to knowledge.
ii. Provides employment opportunities.