CBSE ANNUAL PAPER - 1999

(SET-I)

Time allowed : 3 Hours

M.M. : 100

General Instructions :

(iii) Marks are indicated against each question.

(iv) Answers should be brief and to the point.

PART-I

(PRINCIPLES AND FUNCTIONS OF MANAGEMENT)

Motion Study : It is the study of the movement of a machine operator and his machine on the job. The purpose is to eliminate useless motions and thereby establish standards of performance, for developing a more efficient and less time-consuming system of operation.

According to Vitels, " Supervision refers to direct and immediate guidance and control of subordinates in the performance of their tasks."

Management is the process of planning, organising, staffing, directing and controlling the efforts of the organisation members and of using all the resources ( not only labour, capital etc., but also technology and information to achieve organisational goods effectively.

(i) Direction or flow,

(ii) Delegation, and

(iii) Meaning

(i) When there are large scale operations :

(ii) When expert knowledge is necessary in certain field.

(iii) It should be practiced only at higher levels.

The production manager of Sanjay Ltd., an organisation manufacturing scooters, asked his foreman to achieve a target production of 250 scooters per day. but he does not give him the authority to requisition tools and materials from stores department. Can the production manager blame his foreman if he is not able to achieve the desired target ? Explain, in brief, the principle relating to this situation in support of your answer. (4)

No, the production manager cannot blame the foreman because he was not given the authority to requisition tools and materials from the stores department to achieve a target production of 250 scooters per day. There is a violation of the principle of parity of authority and responsibility. According to this principle, authority and responsibility should go hand in hand. Responsibility without authority in meaningless. Every individuals in the organisation should be given corresponding authority to enable him to carry out the assigned task effectively.

As a representative of workers, you want to impress upon the management the need for introducing time-wage system in place of existing piece - rate system. what reasons will you give to justify your view point ? Explain briefly. (5)

Time-rate system should be introduced in place of existing piece rate system due to the reasons that follows :

(i) IT is simple to calculate and easy to understand. Calculation of wages in piece-rate system is complex and confusing.

(ii) The quality of product is better maintained than in piece-rate system.

(iii) Time-rate system is favoured by trade union leaders as it brings about labour unity. Piece-rate system provokes rivalries.

(iv) There is certainty of income to the wage earners in time-rate system whereas it is no so in case of piece-rate system.

A good control system must have the following features :

1. It must be appropriate to suit the requirements of an organisation.

2. It should be economical in cost as well as in time.

3. It must be simple and easily understandable to all managers and employees.

4. It should be based on the objectives of the organisation. The objectives should be accurate.

5. It should be flexible in nature, with the change in environment conditions, objectives, and plans, the process of controlling should also change.

6. An effective control system should be forward looking. IT should check the current performance and provide easy information to achieve the result in accordance with the standards.

"Co-ordination is needed at all levels of management." Explain this statement briefly.(5)

Co-ordination - There are three levels of management -top level, middle level and lower level of management. In order to achieve the business goals, there must be co-ordination in all three levels i.e. all these levels work towards the achievement of the common goals. It means harmony between top, middle and lower levels of management. It is rightly said that co-ordination is the essence of management. The object of co-ordinate is to unify, integrate and harmonise the different activities of these levels to achieve the common goal. Achievement of harmony between top level and lower and middle levels of management helps to achieve the group goals.

Explain briefly the principle of 'Espirit -de-Corps' and principle of 'Equity'. (5)

Principle of 'Esprit de Corps' : This principle states that 'union is strength', and emphasizes on team-spirit. Fayol defines Esprit de-corps as unity of effort through harmony of interests. An organisation can succeed only by means of collective effort in a team spirit. Team work is possible through effective communication.

Equity : Equity means fair dealing, equality of treatment and accommodative or co-operative attitude among the personnel in the undertaking. Equity results from a combination of kindness and justice. Employees expect equity from management. The application of equity requires good sense, experience and good nature on the part of the manager. The managerial treatment of the subordinates should be free from the influence of prejudices and personal likes or dislikes.

Explain briefly the various steps involved in the planning process. (6)

The major steps involved in the planning process are discussed below :

1. The first step in the planning-process is the determination of the objectives; the objectives serve as the basic of planning. The objectives must be clearly spelled-out and communicated to employees at all levels.

2. Planning is based on forecasting or estimating future trends. The next step is to identify the assumptions - known as planning premise, on which the planning is based.

3. The manager must plan keeping in mind the organisational conditions and limitations; these limitations may as well be external or operative outside. The management should assess intelligently key factors such as power, stocks, materials, finance and labour.

4. The next step in planning is to develop alternative plans of action. This practice broadens the vision of the manager.

5. The various alternatives are then evaluated in terms of various factors like coast, risk etc. The manager analysis the various plans to decide as to which offers the best chance of reaching the predetermined objectives.

6. Lastly, after choosing a particular plan, it should be put into action. Plans are converted into action by establishing policies, schedules, standards of performance, budgets etc.

What is meant by the term 'incentive' ? Discuss the role of financial and non-financial incentives to increase the efficiency of workers. (8)

An incentive is something which stimulates a person towards some goal. It activates human needs and creates the desire to work. Thus, an incentive is a means to motivation. Incentives generally have a direct influence on the degree of motivation. In organisations, increase in incentive leads to better performance and vice - versa.

Role of Incentive : Two kinds of incentives may be provided to the employees, namely, (i) financial or monetary incentives, and (ii) non-financial incentives. The role of both types of incentive is discussed below :

Financial incentives : Financial incentives motivate the workers through external factors which are primarily of financial nature or are related to money. These can be in the form of wages, piece-work or any other incentive pays, bonuses, company paid insurance, profit sharing schemes, pension, paid vacations etc. Monetary incentives are extrinsic motivators because the satisfy off-the-job needs of the workers. They satisfy most of the basic survival and many of the safety and social needs. Money acts both as a motivator and maintenance factor, depending upon each individual's current need level.

Non-financial incentives : Financial incentive do not work for ever to motivate the people at work. The employees do not always run after money as it can't satisfy all their needs. They want status and recognition in the society. They want to satisfy their egoistic needs and achieve something in their lives. Management can use non-financial incentives to satisfy such needs of workers. Non-monetary incentives can't be expressed in terms of money. Such incentives may include grant of higher status, recognition, assignment of challenging jobs, participation in management decisions, opportunity of growth, suggestion system etc.

PART-II

(FUNCTIONAL MANAGEMENT)

Promotion Mix : It refers to all marketing activities to increase the volume of sales of the product of an enterprise. It consists of all means of marketing communication with a view to informing and persuading the prospective buyers to buy a certain product. It involves decisions about advertising, procedures of giving free articles for purchase of the particular commodities, conducting contests, role of personal selling by the salesman and other sales promotion techniques. Advertising and personal selling are important tools to promote the sale of products of a firm.

Objectives of Sales Promotion : The following are the main objectives of all sales promotion activities :

(i) Creation of Demand : The primary objective of sales promotion is to influence, stimulate, maintain and create demand for a product.

(ii) Educating Consumers : Products communicate information to the consumers about new products or new uses of the old products to increase their sales. They high-light the main features and use of the products to the prospective buyers and secure brand preference.

(iii) Securing Response in the Desired Manner : -It aims at changing the attitude and behaviour of the people. It is intended to encourage the consumers to continue with their purchasing habits and persuade others to buy them.

(iv) It must add value of the product by creating an image for them.

Following are the three steps involved in financial planning :

1. Estimating the amount of capital to be raised.

2. Determining the form and proportionate amount of securities to issue.

3. Formulating policies and procedures for the administration of capital.

Role of Personnel Manager : A personnel manager plays an important role in the success of an organisation. The most important role of a Personnel Manager is to maintain adequate working force. His other roles revolve round this basic role. These are given below

(i) Estimating manpower requirements,

(ii) Establishing job satisfaction,

(iii) Determining labour sources, recruitment and selection,

(iv) Placement - put the right man at the right place,

(v) Training to workers,

(vi) Keeps personnel records etc.

Give any three points of difference between recruitment and selection.(3)

Recruitment and selection are two different stages of the personal management. They are distinct but related to each other. Following are the points of distinction between the two :

(a) Meaning : Recruitment means searching for prospective employees and encouraging them to apply for the jobs in the organisation while selection means choosing candidates possessing the required qualification.

(b) Objective : The objective of recruitment is to create a large pool of applicants for the jobs, whereas the objective of selection is to eliminate as many candidates as possible until the most competent and suitable candidate is available.

(c) Process Involved : In recruitment the process involved is simple and candidates are not required to cross certain hurdles whereas the process involved in the selection is complex and consists of a number of hurdles created by the management deliberately.

Nature of Activity - The recruitment is known as positive activity as it seeks to persuade people to apply for the jobs whereas selection tends to be a somewhat negative process because it rejects a good proportion of those who apply.

Both help in appointing the various employees in different jobs held under the same organisation.

Explain any three effects of under-capitalisation on shareholders. (3)

Effects of under-capitalisation on shareholders :

(i) High share price may encourage the management of the company to speculate in its shares. It may show either more or less than the actual profits. This may result in the exploitation of uninformed shareholders.

(ii) Heavy profits may attract heavier taxes and controls by the government.

(iii) It may limit marketability of shares due to which the shares may bot enjoy so high a market value as is justified by the earnings.

A newly appointed personnel manager does not feel the necessity of maintaining the personal records of the workers as he is of the opinion that maintaining personal records is merely a wastage of time. Do you agree with him ? Give reasons in support of your answer. (4)

This statement does not hold true as it looks only at the negative side of personal records. IT is true that maintaining personnel records involves heavy expenditure. Going through them regularly is a time consuming job as well. But if we try to understand their objectives and their importance both to the employee and the employer, we would certainly disagree with opinion of a newly appointed personnel manager.

Maintenance of personal records is necessary to achieve the following objectives :

1. To provide complete and correct information about all the employees of the organisation.

2. To determine the suitability of the employees for specific jobs and decide their transfer and promotions.

3. To decide the training and development requirements of the employees.

4. To determine wage structure, cost of living, various labour policies and future manpower needs etc.

Piece rate system is suitable in the following situations :

(a) When methods of production are standardised and the job is of repetitive nature.

(b) When productivity of the workers is to be increased.

(c) Where the job involves more physical work than the mental work.

(d) Where output can be measured and quality control system exists to discourage low quality production.

(e) Where work does not require personal skills of higher order.

Explain in brief the following rights of consumers : (5)

(i) The right to safety, and

(ii) The right to seek redressal of grievances.

(i) The Right to Safety : Certain goods like electrical goods and pressure cookers can cause serious injury, if there is any manufacturing defect. There is also a risk to life. Consumers have the right to be protected against any such danger.

(ii) Right to seek redressal of grievances : The consumers must have a right to get their claims settled against the manufacturer if they are cheated. A number of consumer courts courts have been set up specifically for this purpose.

Capital investment decisions also known as capital budgeting decisions which pertain to long term assets. These are decisions which involve investment of current funds in long-term assets an thus, capital budgeting is the technique of making long-term decisions for investment and their finance. Nature of capital budgeting is summarized below :

(i) Capital budgeting is exchange of current funds for future benefits.

(ii) It is the investment of funds in long term assets.

(iii) Future benefits will occur over a series of years in future.

(iv) A relatively high degree of risk regarding the future benefits.

(v) A relatively long-time periods between investments of funds and the expected return.

What are the principal sources of long-term finance for a business enterprise ? Explain. (6)

The major sources of long-term finance include :

1. Equity Share Capital

2. Preference Share Capital

3. Retained Earnings

4. Debentures

5. Term loans from financial institutions.

We discuss below the feature of these sources of finance along with their evaluation from the point of view of the business enterprise as well as investor.

1. Equity Share Capital : Equity Share Capital also known as ordinary Capital represents ownership capital. The holders of equity shares are the legal owners of the company. They are entitled for the dividends on the Capital contributed by them. The rate of dividend is not fixed and is dependent upon the quantum of profit available after the income claims of others have been meet.

Advantages of Equity Share Capital :

(a) It is a source of permanent capital.

(b) It does not involves any fixed obligation for payments of dividends.

(c) It increases the company's financial base and thus its borrowing limit.

Disadvantages of Equity Share Capital

(a) The cost of equity share capital is higher than other sources. The rate of return required by equity shareholder is generally higher than the rate of return required by other investors.

(b) Equity dividends are not deductible payments and are payable from past-tax earnings.

(c) If the company issues only equity shares, it will lose the opportunity of trading on equity by issuing other securities.

(d) Higher dividends on equity shares during prosperous periods push up their market values and generally lead to awkward speculation.

2. Preference Share Capital : Section 85 (I) of the Companies Act defines preference shares as those which carry preferential rights as to the payment of dividend at a fixed rate and as to the repayment of capital. Thus, preference shareholders enjoy two preferential rights over the other category of shares :

(i) They are entitled to receive a fixed rate of dividend out of the net profits of the company prior to declaration of dividend on equity shares.

(ii) The assets remaining after the payment of debts of the company under liquidation are first appropriated for returning the capital contributed by the preference shareholders.

Advantages of preference Share Capital

(i) The preference share attract funds from those investors who prefer safety of their investments and a fixed rate of return on their investments.

(ii) The management can retain control over the company by issuing preference share to outsiders because the preference shareholdlers have only restricted voting rights.

(iii) Preference shareholders are entitled to a fixed rate of dividend which enables the equity shareholders to get higher dividend.

(iv) Redeemable preference shares may be issued to bring flexibility in the financial structure of the company as they can be redeemed whenever it is necessary.

3. Retained Earnings : Sometimes companies retain some profits to finance their requirements. It is an internal source of finance. Normally, companies do not distribute its entire earning in the form of dividend. Such a practice helps the company to build up reserves which can be used for financing long term requirements.

4. Debentures : According to Justice Chitty, "Debenture means a document which acknowledges a debt". A debenture is an instrument issued under the common seal of the company, acknowledging its debt to the holder under the terms and conditions specified in the instrument. The terms may relate to the rate of interest, mode of repayment of principal and the security offered. A debentures holder is a creditor of the company.

Debenture have two characteristics :

(a) Debentures carry a fixed rate of interest.

(b) Generally, debentures are repayable after a certain period which is specified at the time of issue.

Advantages of Debentures

(i) A debenture holder cannot interfere in the management and control of the company.

(ii) Debenture are suitable for meeting the company's special financial requirements. Company can refund the surplus money.

(iii) Debentures bear less cost as compared to public deposits and bank loans.

(iv) The profits and losses of the company do not effect the interest payable to the debenture holders.

(v) Debenture holders have a safe investment and fixed and regular income.

Disadvantages of Debentures

(i) Debentures involve legal obligation to pay interest and principle amount. Failure to meet these obligation can fore the company into liquidation.

(ii) The issue of debentures may bot be possible beyond a certain limit due to the inadequacy of assets to be offered as security.

5. Term Loans from Banks and financial Institutional : Term loans are a source of long-term finance financial institutions, like IFCI, IDBI, ICICI, UTI et. The loans are utilised for purchase of fixed assets and expansions purposes. They are repaid in more than a year but less than 10 years. Borrowers have to offer security in the form of asset which is financed by term loan. Rate of interest on such loans is fluctuating as per credit policy.

The media of advertising include the following :

1. Newspapers : Newspapers is a part of press advertising. It is commonly employed by sellers to transmit product related messages. Newspapers reach all places and are read by all types of people. Therefore, newspaper advertising has a general and wide appeal.

2. Magazines : Magazines and journals are good medium of advertisement when a high quality of printing and coour are desired in an advertisement. Selective appeal to specific segments of the market is possible. Magazines of general interest like Sarita, Women Era, India Today and Caravan could be used for advertising products common household goods. A particular Journal may be selected to suit the goods offered for sale. The circulation of magazines and Journal is usually limited. Moreover, these advertisement are quite costly.

3. Radio advertising : Radio has established itself as a very powerful media of advertising. Radio advertising refers to the conveying of the advertising message through the radio. Such advertisements reach far off places and are listened to by the illiterate people also.

4. Television advertising : Television advertising is the recent media of advertising. Television uses both visual (sight) and audio (sound) signals. It has all the advantages of radio, namely sound and explanation, plus the added advantage of sight. It can appeal through the ears as they eyes. Products could be demonstrated with explanation.

5. Film advertising : Films have become an important media of advertising in these days. Business concerns get short films or slides prepared by advertising agencies and distribute them to selected cinema houses for display. these short advertising films are shown before the regular shows or during intermission. A running commentary on the features, uses and superiority of the product is also provided.

6. Outdoor advertising : Out door advertising assumes the form of posters, bill boards, electrical at crossing and in buses. IT attracts the attention of the people quickly.

7. Direct mail advertising : It involves the preparation of a mailing list of persons or firms to whom the message is to be sent. The message is then sent through sales letter, folders, pamphlets booklets, catalogues and the like. The important merits of advertisement by direct mail are its selectivity, personal touch, secrecy and flexibility.