CBSE Sample Papers for Class 12 Entrepreneurship Set 6 with Solutions

Students must start practicing the questions from CBSE Sample Papers for Class 12 Entrepreneurship with Solutions Set 6 are designed as per the revised syllabus.

CBSE Sample Papers for Class 12 Entrepreneurship Set 6 with Solutions

Maximum Marks: 70
Time Allowed: 3 Hours.

General Instructions:

The question paper contains 4 sections -A, B, C and D.

Section A contains Multiple choice questions.
Section B-2 marks
Section C-3 marks
Section D-5 marks

Section – A (18 Marks)

Question 1.
Varun along with his friends had a brilliant idea to manufacture an air conditioner which will also act as an air purifier. The idea was new and the market did not have such a successful product. For starting the unit, they were in need of huge funds, so they decided to approach Shankar, a successful businessman and who is also a venture capitalist. However, Shankar said that he was very busy and if they could pitch their idea within a span of 3 minutes, he was ready to hear it. Which format of Business plan will Varun and his friends would have to use? [1]
(A) Elevator Pitch
(B) A pitch deck with oral narrative
(C) A written presentation for external stakeholders
(D) An internal operational plan
Answer:
(A) Elevator Pitch

Explanation: Elevator pitch is a three-minute summary of the business plan’s executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.

Question 2.
Harshdeep is the stockkeeper of Neha Textiles Ltd. The company is into converting cotton yarn into fabric and then further computerised printing on the same to add value to the fabric. He wants to know the ideal quantity of yarn to be ordered so that the production process does not stop. How can he know the correct time to place an order? [1]
(i) By calculating Break-even point
(ii) By calculating Re-order point
(iii) By calculating Economic order quantity
(iv) By calculating lead time
(A) (iii), (iv)
(B) (ii) only
(C) (i), (ii), (iii)
(D) (ii), (iii)
Answer:
(B) (ii) only

Explanation: The reorder point (“ROP”) is the level of inventory when an order should be made with suppliers to bring the inventory up by the Economic order quantity (“EOQ”). Reorder point takes due note of the lead time and demand during lead time. Reorder formula = Average daily usage rate × Lead time in days.

Question 3.
Mallika was selling vegetables in her cart along with her mother. They were able to earn a profit of around ₹200 every day. Even though the amount was not substantial it was sufficient for a decent living. Mallika often noticed that nuclear families where both husband and wife go to work find it difficult to cook as cleaning and cutting vegetables took a lot of time, so an entrepreneur she started gathering information regularly and developed a new product line of selling cut vegetables in hygienic packaging. Mallika used which of the following trend to spot this idea? [1]
(A) Watch trends
(B) Think trends
(C) Read Trends
(D) None of these
Answer:
(B) Think trends

Explanation: As an entrepreneur begins gathering information regularly, they will start to develop a “trend-spotter mind.” As they absorb and mull about what they’ve read, heard and observed, they’ll start to make connections and observations that will lead to business-boosting insights.

Question 4.
Bob, Panny, Honey and Lily were childhood friends. They studied together till class XII. Bob and Panny became doctors and Honey and Lilly became Engineers. All of them had good earnings. They were creative and innovative and wanted to start a business. Bob and Panny gave an idea to manufacture a machine which would help the surgeons in doing surgery without much blood loss.

Honey and Lily agreed to it, but they were short of capital. They estimated that approximately Rs. 2 crores would be required to finance the project, which would be collected by them from their friends and relatives. Which of the following form of business organisation is mentioned here? [1]
(i) Sole proprietorship
(ii) Partnership
(iii) Company
(iv) None of these
(A) 1 only
(B) 2 only
(C) 1,3
(D) 2,3
Answer:
(B) 2 only

Explanation: A partnership is an association of two or more persons to carry on, as co-owners, a business and to share its profits and losses. The objective of the business is to make profits and distribute the same amongst partners. Any association initiated to do charity work is not partnership. The relation of partnership arises from contract and not from status. Though oral agreement is even acceptable but in practice written agreement is much more advisable as disputes can be resolved better with it.

Question 5.
XYZ Ltd. is a manufacturer of coffee. The company planned to expand and was planning to buy a land in Karnataka. The chief financial officer suggested to offer the shares to a limited number of sophisticated investors. Out of the following, identify the method of raising the funds being suggested by the CFO: [1]
(A) Public issue
(B) Right issue
(C) Private placement
(D) Offer to employees
Answer:
(C) Private placement

Explanation: Private placement means the direct sale by a company of its securities to a limited number of sophisticated investors. Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like, Unit Trust of India, Life Insurance Corporation of India, General Insurance Corporation of India, Army Group Insurance, State Level Financial Corporations, etc.

Question 6.
Assertion (A): The sole proprietor has limited liability.
Reason (R): Sole proprietorship form of business is suitable when capital requirement is limited, confidentiality or secrecy is important and size of the venture is small. [1]
(A) Both (A) and (R) are true and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A).
(C) (A) is correct but (R) is wrong.
(D) (A) is wrong but (R) is correct.
Answer:
(D) (A) is wrong but (R) is correct.

Explanation: In the sole proprietorship business, the sole owner has unlimited liability. Unlimited liability means that in case the enterprise incurs losses, the private property of the proprietor can also be utilized for meeting the business obligations to outside parties. In this case, the owner is himself liable to pay all the liabilities. If he takes a loan for its business then he will be liable for all the debts. Hence, he is personally liable for all the debt which can be recovered by his personal estate when funds are insufficient.

Question 7.
The following information is obtained from the financial statements of Bites Ltd. What will be Return on Equity?
Net Income earned: ₹20,00,000 Equity: 4,00,000 [1]
(A) 200%
(B) 300%
(C) 100%
(D) 500%
Answer:
(D) 500%
Explanation: Return on Equity = Net Income/ Equity × 100
= 20,00,000/4,00,000 × 100
= 500 %

Question 8.
Assertion (A): Like a human being a company can buy, sell and own property, sue others, be sued by others.
Reason (R): A company is an artificial person created by the law. [1]
(A) Both (A) and (R) are true and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A).
(C) (A) is correct but (R) is wrong.
(D) (A) is wrong but (R) is correct.
Answer:
(A) Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation: A company is created by law. Though, it has no body and no conscience, it still exists as a person, having a distinct personality of its own. Because like a human being it can buy, sell and own property, sue others, be sued by others, hence called as an artificial person.

Question 9.
Assertion (A): Rights issue is a method of raising additional finance from existing shareholders.
Reason (R): Right issue method of issuing securities is considered to be inexpensive. [1]
(A) Both (A) and (R) are true and (R) is the correct explanation of (A).
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A).
(C) (A) is correct but (R) is wrong.
(D) (A) is wrong but (R) is correct.
Answer:
(B) Both (A) and (R) are true but (R) is not the correct explanation of (A).

Explanation: Rights issue is a method of raising additional finance from existing shareholders by offering securities to them on pro-rata basis i.e. giving them a right to a certain number of shares in proportion to the shares they are holding. Normally, through a circular, rights issues are proposed to the existing shareholders and in case they are not willing to subscribe, they can renounce the same in favour of another person. This method of issuing securities is considered to be inexpensive as it does not require any brokers, agents, underwriters, prospectus or enlistment, etc.

Question 10.
100 water bottles are proposed to be produced per week by a firm and for that ₹3,000 are needed for raw materials, ₹2,000 for wages and other changes. If it takes three weeks to receive the payments on the sales, then what will be the working capital? [1]
(A) ₹10,000
(B) ₹15,000
(C) ₹5,000
(D) ₹20,000
Answer:
(D) ₹20,000

Explanation: Money spent during the first week comes only at the end of fourth week. Working capital is needed for four weeks.
Working capital = (₹3,000 + ₹2,000) × 4 weeks
= ₹5,000 × 4
= ₹20,000

Question 11.
Idea Generation is the process of which of the following forms? [1]
(i) Abstract
(ii) Concrete
(iii) Visual
(iv) All of the above
(A) (i), (ii)
(B) (i)
(C) (ii), (iii)
(D) (iv)
Answer:
(D) (iv)

Explanation: Idea Generation is the process of creating, developing, and communicating ideas which are in an abstract, concrete, or visual form. It includes the process of constructing through the idea, innovating the concept, developing the process, and bringing the concept to reality.

Question 12.
Vipul a new generation high tech farmer is involved in organic farming. He realised that there was a huge market for his fruits and vegetable as people have become health conscious and prefer to eat healthy food. Keeping in mind, he decided to open organic fruit juice corner outside central parks and in prominent malls in Jaipur. Now he needed, a ‘road map’ for himself to start the venture. Identify the term used for ‘road map’ by Vipul. [1]
(A) Form of organisation
(B) Human resource
(C) Market scope
(D) Business plan
Answer:
(D) Business plan

Explanation: The business plan is a comprehensively written down document prepared by the entrepreneur describing formally all the relevant external and internal elements involved in starting a new venture. The entrepreneur must make some important decisions and gather information about the external and internal factors.

This is possible only if the entrepreneur is capable of effectively planning where he/she is, and where he/she would like to be and how? Some kind of a ‘game plan’ or a ‘road map’ is required to let the venture evolve from an early start-up to a mature business.

Question 13.
Yash was not too keen to take up his family run business of making bamboo baskets. But due to the bad condition of the family business, he had no option except to take up this business. He started thinking about the new ways of using bamboo. One day while having lunch in a restaurant, he overheard the owner talking about the difficulty in disposing the plastic and therma col crockery that was being used in the restaurant.

This provided him the stimulus for a new venture creation. Yash started looking into various options of making bamboo plates which could be used in the restaurants. He discussed the idea with his father who advised Yashthat ideas should lead to commercially viable forms in order to survive and grow.
Identify the concept discussed in the above situation. [1]
(A) Creativity
(B) Idea germination
(C) Illumination
(D) Incubation
Answer:
(A) Creativity

Explanation: Creativity is an important and key component of the talents and abilities needed for an entrepreneur. Apart from applying creativity to spot and harness opportunities, it can also be applied to develop new products and services. Creativity in innovating a solution and vision. The entrepreneur should be able to creatively identify an idea to generate a valuable solution to a problem. Once the solution is identified their vision to convert the solution into business opportunity helps them to move forward, overcoming all the obstacles.

Read the following passage and answer the questions from14 to question 18.

For over 20 years, ‘Floral Petals’ are helping its customers to celebrate their special moments by delivering fresh flowers and wonderful gifts. Floral Petals was established in 1998 and flower bouquet delivery was the first and only thing that the company was into. They opened their first store in Delhi and gradually expanded their business in other states as well with the objective of providing its customers with fresh flowers creatively packed and value for money. It procures fresh flower directly from the farmers.

The organization makes sure that the farmers adopt organic means to nourish the soil and do not use chemical fertilizers as it degrades the soil fertility. Packaging material is procured from especially abled craftsman of I WILL. Floral Art and Craft’s Facebook and twitter page encourages two-way communication with its customers. These social media channels provide a platform through which it can interact with customers and access their opinion about the brand.

The store also uses direct e-mails to their frequent customers to inform them about different schemes and other promotional messages. Its website promotes the store by organizing different flower decorating classes and competitions using the products of I WILL.

Question 14.
Identify the promotion strategy adopted by I WILL. [1]
(A) Above-the-line
(B) Below-the-line
(C) Through-the-line
(D) All of the above
Answer:
(B) Below-the-line

Explanation: Below-the-line methods are very specific, memorable activities focused on targeted groups of consumers. They are under the control of the organisation. The purpose of these activities has been to develop the brand by creating awareness and building a brand profile.

Question 15.
Which of the following lines from the text states that it is a Below-the-line Promotion Strategy? [1]
(A) ‘Floral Petals Facebook and twitter page encourages two ways communication with its customer.’
(B) These social media channels provide a platform through which it can interact with customers and access their opinion about the brand.
(C) The store also uses direct e-mails to their frequent customers to inform them about different schemes and other promotional messages.
(D) All of the above
Answer:
(D) All of the above

Explanation: Below the line are under the control of the organisation. The purpose of these activities has been to develop the brand by creating awareness and building a brand profile, which include sponsorship, sales promotions, public relations, personal selling, direct marketing etc.

Question 16.
Which of the following the Below-the-line method involves oral presentation of message in the form of conversation with one or more prospective customers for the purpose of making sales. [1]
(A) Sponsorship
(B) Sales promotions
(C) Public relations
(D) Personal selling
Answer:
(D) Personal selling

Explanation: Personal selling means selling products personally. It involves oral presentation of message in the form of conversation with one or more prospective customers for the purpose of making sales. Companies appoint sales person to contact prospective buyers and create awareness about the company’s product.

Question 17.
Which of the following the below-the-line method relates to short-term incentives? [1]
(A) Sponsorship
(B) Sales promotions
(C) Public relations
(D) Personal selling
Answer:
(B) Sales promotions

Explanation: Sales promotion relates to short–term incentives or activities that encourage the purchase or sale of a product or service. Sales promotions initiatives are often referred to as below the line activities. Sales promotion activities can be targeted towards final buyers (consumer promotions), business customers (business promotions), retailers and wholesalers (trade promotions) and members of the sales force (sales force promotions).

Question 18.
Which of the following method builds good relations with the stakeholders? [1]
(A) Sponsorship
(B) Sales promotions
(C) Public relations
(D) Personal selling
Answer:
(C) Public relations

Explanation: Public relations is the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation (or individual) and its (or their) public.

Public relations are about building good relations with the stakeholders (public) of the business by obtaining favourable publicity, building a good corporate image and handling or heading off unfavourable rumours, stories and events. By building good relationships with the stakeholders, particularly customers, one can generate positive word of mouth and referrals from satisfied customers.

Section – B (12 Marks)

Question 19.
Name and explain the element of promotion mix that would help in making people aware that a branch of a reputed restaurant is opening in their locality. Also mention any two business objectives that can be achieved through this element. [2]
OR
Explain any two features of Personal Selling.
Answer:
Advertising is the element of promotion mix that would help in making people aware that a branch of a reputed restaurant is opening in their locality.
Business objectives that can be achieved through advertising:

To create a need and stimulate a demand.
To minimize the marketing cost.
To facilitate speedy movement of products.
To create goodwill.
To help in expansion and diversification.
To help in stabilizing the value for the product.
To help in stabilizing the business.
To create a customer support and customer acceptance for the product.
To monitor and control the buying habits of the consumers.

The features of personal selling or salesmanship are as follows:

Personal Contact: In this both parties have personal contact with each other. It involves personal and individual communication.
Verbal Message: There is an exchange of verbal messages between buyers and the sales personnel about the description of the product i.e., price, colour, shape, design, method of usage, etc.
Flexibility: It is flexible.
Effort: It makes an honest effort to induce the customer to buy the products.
1. Removal of Doubts: Before purchasing the goods, the buyer has many doubts and the salesman clear his doubts by answering to his questions.

Question 20.
Read the following passage and identify and explain the growth strategy adopted by Amaga private Ltd. Amaga private Ltd. is a steel manufacturing company having its headquarters at Delhi. They are a leading integrated steel manufacturer. Currently, one of the fastest growing companies in India and the tenth largest steel manufacturing company of the world. It is also the first company to manufacture high-strength and advanced high-end steel products for its automotive segments.

Beeta public Ltd. are also steel manufacturers with their headquarters in New York. For a long period, the company Beeta public Ltd. had been facing workers unrest and it decided to sell its business to an international bidder. The highest bid for this was made by Amaga private Ltd. for ₹20 crores.

Afterwards Amaga private Ltd. realised that the assets of Beeta public Ltd. were overvalued and liabilities were under-assessed and hence the price paid by them was higher. The employees of the two entities have different corporate cultures and styles of leadership which led to the problem of coordination. UltimatelyAmaga private Ltd. had to close its business. [2]
Answer:
The growth strategy adopted by Amaga private Ltd. is Acquisition. Acquisition is a corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company’s stock or a combination of both.

Question 21.
Describe any two fields of ideas, with suitable examples.
OR
Explain any two sources which lead to the emergence of basic ideas. [2]
Answer:
Following are the various idea fields:

Natural resources: Ideas can be generated based on natural resources. A product or service may be desired from forest resources, agricultural, horticulture, mineral, marine or aqua mineral, animal husbandry, wind, sun and human resources.

Existing products or services: There is a constant and consistent effort on the part of all entrepreneurs to improve the products and services already in the market. There are new techniques and strategies being developed in every service like teaching, medicine, management, etc.

Market driven or demand driven ideas: One important method for generating ideas is to carry out a market research. Such a study yields valuable data about trends of supply, demand, consumer preferences, etc.

Trading related ideas: With increasing consumerism, the scope and nature of trade has enlarged; local trade, imports and exports, e-commerce etc. all make trading a very wide area of enterprise.

Service sector ideas: Along with manufacturing field, service sector is the fastest growing field these days all over the world. An entrepreneur identifies new opportunities and by understanding it he links services to develop various business activities.

Creative efforts: Creativity is an important and key component of the talents and abilities needed for an entrepreneur. It can be applied to develop new products and services. Example: self-adjusting screwdriver which prevented over tightening.

Problems: When an idea revolves around an existing problem the solution is most often a business opportunity. Business dealing in generators and inverters, grow due to the problem of electricity. A problem gives rise to a business opportunity.

Change: Any change, whether it is social, legal or technological, can be exploited as new business opportunities. The mushrooming of cyber cafes and computer institutions are very good examples of such opportunity.

Inventions: Invention means creation of new things of certain value. It as well includes creative process that adds value to an already existing product or service in the market. Introduction of gas geysers in place of electric geysers is an example of opportunities brought about due to new inventions.

Competition: Whenever someone tries to beat the competition, he resorts to new and improved ideas. This is the only way to survive in the market.

Question 22.
Naveen after completing his M.Tech in Nano Technology wanted to start his own business. He thought to manufacture sophisticated instruments used in surgery. He knew that his knowledge of Nano Technology will help the surgeons to operate upon the patients with accuracy, with minimum blood loss and quick post operation recovery. Such types of instruments are used in advanced countries only and there was a risk in marketing the same.

The cost price of machinery required, for manufacturing such instruments was very high and more research was required in this field of Nano Technology. For seed funding, Naveen approached, ‘Himani Capital Ltd.’ who finance such types of projects. ‘Himani Capitals Ltd.’ after analysing the proposal agreed to provide seed capital to Naveen. Explain the different stages of ‘Early Stage Financing’ to seek venture capital finance after the one discussed above. [2]
Answer:
Pre-start up and start up finance: A business plan is presented by the entrepreneur to the VC firm. A management team is being formed to run the venture. If the company has a board of directors, a person from the VC firms will take seats at the board of directors. The VC firm monitors the feasibility of the product and the capability of the management team from the board of directors.

Second round financing: This is the first encounter with the rest of the market. The entrepreneur, at this stage, needs assistance from the Venture Capitalist for expansion, modernization and diversification so that the economies of scale and stability could be attained.

Question 23.
How is target market identified while preparing the marketing plan? State.
OR
State any two items of physical infrastructure that should be mentioned in the description of a business plan. [2]
Answer:
Deciding what the general market or industry entrepreneur wishes to pursue. Divide the market into small groups. Buying situations. Select segment and develop a marketing plan.

Availability of the following items of infrastructure should be mentioned in the business plan:

Raw Material: Whether indigenous or imported sources of supply, etc.

Labour: Types of labour required, provision for their training, number of manpower required, etc.

Utilities: These include – Power, fuel, water, gas, electricity, etc. Business plan needs to clearly state:

Type of utilities required
Load sanctioned
Sources and quality of water used, quantum of coal, coke, oil, etc. required and the supplies of the source.

Pollution Control: The sewage system, and the sewage treatment plant, water harvesting system, arrangement for dumping and disposing of the other type of waste or emission all need to be discussed in the plan.

Question 24.
Rohit Shetty started leader shoe business with his brother. Both were very excited about the new venture. With meticulous planning and a lot of hard work they were able to sell 700 pairs of shoes in the first year. But they did not earn any profit. Both were happy because they were not at loss and revenue generated was equal to the cost.
Now they were moving towards earning profit in the second year.
(i) Identify the component of financial plan discussed above.
(ii) By giving any two points state how this component is useful for the entrepreneur? [2]
Answer:
(i) Break-Even Point is the component of financial plan.
(ii) Every firm wants to maximise its profit. The break-even point is the level of volume of production at which fim neither makes a profit nor a loss. Here, the total revenue is equal to the total cost of a fim, at the given level of capacity. Thus, calculation of BEP is quite useful for the entrepreneur as it helps in assessing:

The minimum level of output to be produced,
The effect of change in quantity of output upon the profits.
The selling price of the product.
The profitable options in line of production.

Section – C (15 Marks)

Question 25.
Nishtha, a professionally qualified entrepreneur decided to start kids furniture’ a website of designer furniture. It was relatively an untried area involving high risk. She lacked the necessary funds and experience to give shape to her idea. She knew that if she failed to get investment from the public her idea would die down before it is tried. So, she made a detailed business plan and presented her idea to ‘FiFa Finance Ltd, a company run by a group of professional investors. They were impressed by her business plan and decided to fund her start-up in exchange for an equity stake in the business.
(i) Identify the source of finance used by Nishtha.
(ii) Also explain how this source of finance is different from raising debt [3]
Answer:
(i) Source of finance used by Nishtha is Venture capital.
(ii) This source is different from debts in following ways:

It is a permanent capital in business where as debt capital is to be repaid on maturity.
To pay regular dividend of fixed amount is not compulsory whereas in debt regularly a fixed rate of interest has to be paid irrespective of profits or Losses.

Question 26.
Explain how the process of a basic idea becomes an opportunity?
OR
What are the three steps involved in the process of sensing entrepreneurial opportunities? [3]
Answer:
The given diagram shows how the process of a basic idea becomes an opportunity.

$C:\Users\ASHA\Desktop\CBSE Sample Papers for Class 12 Entrepreneurship Set 6 with Solutions 26$

The above given diagram explains that it is just a process of conversion of basic idea into an opportunity. Business idea arises from an opportunity in the market. It originates from any need or wants for any product or service that an entrepreneur can identify. In this process, all basic ideas have to undergo a vigorous process of close examination, evaluation, analysis and synthesis to become viable opportunities.

An entrepreneur utilizes the skills, knowledge, creative thinking and competency needed to develop an idea which is backed up by various economic, social, political, financial and legal factors in the existing competitive market. By this process an entrepreneur converts ideas into viable business opportunities.

Three steps involved in the process of sensing entrepreneurial opportunities are as follows:

Scanning of Environment: The word ‘Scan’ means to examine closely, especially in search of their relevant environment to identify opportunities and threats affecting them. It also develops an understanding of social, economic, political and other developmental factors in order to ensure that perceived entrepreneurial opportunity is compatible with them. It helps in knowing trends, issues and expectations from the environmental changes.

Generation of Ideas: While scanning the environment, entrepreneur can take up a thorough study of different sources of business ideas to explore it. These ideas can come from talking to friends and others, customers, brainstorming, visiting shops, etc. It is mainly a conscious effort to explore ideas from several sources with the purpose to find a creative solution to a problem or need.

Identification of Product or Services: After evaluating the various ideas received from various sources, an entrepreneur scrutinizes it and selects the best product or service for launching an entrepreneurial venture.

Question 27.
Deepak and Gaurav joined the prestigious law university in Ahmedabad in the year 2010. During the course of study, they became good friends and they both realized that their common interest lies in the field of corporate law. After completion of their degree they decided to start a firm of corporate of their own, namely ‘Corpo Law Firm’ wherein both of them will be co-owners dividing the profit and loss. After successfully running the firm for a year, they realized that there are certain rights which are denied to their firm as it is not registered.
Explain the consequences of non-registration of their firm. [3]
Answer:
Consequences of non-registration of a partnership firm:
A partner cannot file a suit in any court against the firm of other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act. A right arising from a contract cannot be enforced in any court by or on behalf of the firm against the third party. The firm or any of its partners cannot claim a set off or other proceedings in a dispute with a third party.

Question 28.
‘Multan Trucks Ltd.’ are the manufacturers of commercial trucks for the last 20 years. The company had been doing good business but recently due to irregular supply of parts by its suppliers, the company could not make timely delivery of trucks to the parties who had booked their trucks. The customers cancelled their booking and there were very few new bookings. The sales of the company started declining that resulted into losses.

The management of the company analysed the problem and decided to take over those two firms because of whom the problem arose, one of them was supplying tyres for trucks and other axles to the company. The company also extended credit facilities to the customers and started booking the trucks without charging and booking amount. It also decided to employ 70 unemployed youth with 50% reservation for females to take up the cleaning operations, using the imported machines, inside the factories as well as the surrounding areas.
(i) Identify and explain the type of merger discussed in the above paragraph.
(ii) Also state any two other types of mergers. [3]
Answer:
(i) The type of merger is Market extension merger. A market extension merger takes place between two companies that deal in the same products but in separate markets. The main purpose of the market extension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base.

(ii) Types of mergers:

Product extension merger
Vertical merger
Horizontal merger
Conglomerate

Question 29.
Explain any three types of ‘Brand names’ available to an entrepreneur.
OR
Why is packaging considered an important ingredient in the product mix? [3]
Answer:
Individual brand name: Here entrepreneur can choose distinct names for each of his offering, i.e., every product is promoted on the basis of a separate brand name.

Family brand name: Entrepreneur can opt to use a common or successful family name for several products. Either the entrepreneur’s name or the company’s name may be used for all the products. It is even referred as umbrella branding.

Corporate names: Entrepreneur may choose to utilise their corporate name or logo together with some brand names of individual products for example, Godrej, Tata, etc.

Alpha-numeric names: In many industrial products, an alpha-numeric name often signifies its physical characteristics, thus creating a distinctive identity of the product. Entrepreneur has an option available to brand his products alpha-numerically. For example: SX4, i10, i20, etc.

Packaging is an important ingredient in the product mix because of following advantages it offers:

Convenience: Packaging adds to the convenience of the product. It becomes convenient for handling, transporting and storing e.g.
medicines are packed in small packets.

Branding: A specific packaging becomes a part of a brand. A product gets an identification due to packaging e.g., Nirma washing powder has a picture of a dancing girl, Tata salt have Tata salt written on its pack.

Convey information: Various details about the product like quantity, expiry date, date of manufacture, procedure of using, etc. are conveyed to the customers for providing better value to the product.

Eye Catchy: A beautiful pack and attractive design of the pack is always eye-catchy. It attracts the customers, e.g. Perfumes are normally packed in beautifully moulded bottles.

Protection: Suitable packaging provides protection to the product. It improves its self-life and maintains its quality for some stipulated time.

Section – D (25 Marks)

Question 30.
Sales = ₹40,000
Variable cost = ₹20,000
Fixed cost = ₹12,000
(i) Find out P/V ratio, breakeven point, margin of safety.
(ii) Calculate B.F.P with the effect of:
(a) 10% decrease in fixed cost
(b) 10% increase in fixed cost
(c) 10% decrease in valuable cost [5]
Answer:
(i) Profit volume ratio = Contribution / Sales
= Sales Variable cost / Sales
=₹40,000 -₹ 20,000 / ₹40,000
= 50%
B.E.P. = Fixed cost / (P/V Ratio)
=₹12,000 / 50%
= ₹24,000
MOS = Actual Sales – B.E.P. sales
= ₹40,000 – ₹24,000
= ₹16,000

(ii) (a) 10% decrease in fixed cost
Then, sales = ₹40,000
Variable cost = ₹20,000
Fixed cost = ₹12,000 – (10% of ₹12,000)
= ₹12,000 – 1,200
= ₹10,800
P / V Ratio = ₹40,000 – ₹20,000 / ₹40,000
= 50%
B.E.P. = ₹10,800 / 50%
=₹21,600

(b) 10% increase in fixed cost
Fixed cost = ₹13,200
Sales = ₹40,000
Variable cost = ₹20,000
P / V ratio = S – V / S
= 50%
B.E.P. = ₹13 200 / 50%
= ₹26,400

(c) 10% decrease in variable cost
Sales = ₹40,000
Variable cost = ₹20,000 – 2,000
= ₹18,000
P / V ratio = S – V / S
= ₹22,000 / ₹40,000
= 55%
B.E.P. = ₹12,000 / 55 %
= ₹21,818

Question 31.
Hemant’s grandfather owned a huge agricultural firm in the name of ‘Organica’. The company had huge acres of land in Kerala where it grew spices. The company planned to expand and was planning to buy land in Coorg, Karnataka where it will grow coffee. While visiting the place, Hemant saw that the villagers had to walk more than 10 kms of hilly terrain to reach the hospital and he also felt that the villagers did not have any work in the evening apart from doing agricultural work in the morning.

For expansion purposes he required money and the chief financial officer of his company suggested that they raise the required funds directly from the public. Hemant also decided to open a hospital and a skill development center for the villagers in the evening wherein they can learn a lot of new skills.
(i) Explain the method of raising funds directly from the public and the primary advantage that Hemant stands to gain from it.
(ii) Also explain any two other methods of raising funds. [5]
Answer:
(i) Public issue / going public: Public issue involves raising of funds directly from the public through the issue of prospectus. An enterprise organizing itself as a public limited company can raise the required funds commonly by preparing a prospectus. When an entrepreneur a offers shares to the public for subscription he/she is required to comply with all the restrictions and formalities pertaining to the initial issues, prospectus drafting and launch. The primary advantage that an entrepreneur stands to gain is – access to capital.

(ii) The other methods of raising funds are as follows:

Rights issue: Rights issue is a method of raising additional finance from existing shareholders by offering securities to them on pro-rata basis i.e. giving them a right to a certain number of shares in proportion to the shares they are holding.

Private placement: Private placement means the direct sale by a company of its securities to a limited number of sophisticated investors. Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like Unit Trust of India, Life Insurance Corporation of India, General Insurance Corporation of India, Army Group Insurance, State Level Financial Corporations, etc.

Offer to employees: Stock options or offering shares to the employees has gained much popularity in many countries of the world. This method enables employees to become shareholders and share the profits of the company.

Question 32.
What is marketing mix? How does marketing mix play an important role in enhancing the sale?
OR
What do you mean by channel of distribution? Explain the product related factors affecting the choice of channels of distribution. [5]
Answer:
The marketing mix refers to the ingredients or the tools on the variables which the marketing mixes in order to interact with a particular market. Marketing Mix plays an important role in enhancing the sales of the enterprise. Its following components help in increasing the sales:

Product: If various features and characteristics of the product are as per the liking of majority of the potential customers, the sales are automatically going to be higher. Effective after sales service, efficient utilization of know how, full capacity production will create good support for the product. Consequently, saleswill be enhanced.

Price: Favourable and adequate pricing depending on the paying capacity of the customers always appeal the customers. The loyalty towards the product is also enhanced which ensures minimum sales and also attracts new customers. Various pricing methods are available at the disposal of the entrepreneur. Selection of appropriate method can be used as a tool for raising sales.

Promotion: Publicity plays a leading role in promoting sales. Depending on the nature of the product, the advertisement mode can be selected. Door-to-door selling, newspaper, radio, pamphlet, etc. are the various methods, which can be used for increasing the number of customers.

Place: Various channels of distribution can be effectively used by an entrepreneur depending on the nature of market, preference of consumers and the nature of the product. Shorter is the channel of distribution more efficient is distribution.

A channel of distribution or trade channel is defined as the path or route along which goods move from producers or manufacturers to ultimate consumers or industrial users. In otherwords, it is a distribution network through which the producer puts his products in the market and passes it to the actual users. When a manufacturer selects some channel of distribution, he should take care of such factors which are related to the quality and nature of the product. They are as follows:

Unit value of the product: When the product is very costly it is best to use a small distribution channel. For example, industrial machinery or gold ornaments are very costly products that is why for their distribution small distribution channel is used. On the other hand, for less costly products long distribution channel is used.

Standardised or customised product: Standardised products are those for which cost is pre-determined and there is no scope for alteration. To sell this long distribution channel is used. On the other hand, customised products are those which are made according to the discretion of the customer and also there is no scope for alteration, for example furniture. For such products face-to-face interaction between the manufacturer and the consumer is essential. So, for these direct sales is a good option.

Perishability: A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product which is of a highly perishable in nature. On the contrary, a long distribution channel can be selected for durable goods.

Technical nature: If a product is of technical nature, then it is better to supply it directly to the consumer. This will help the user to know the necessary technicalities of the product.

Question 33.
What are the five ways in which creative ideas can be generated?
OR
Explain the factors that help an entrepreneur to identify a product. [5]
Answer:
Creativity is an important and key component of the talents and abilities needed by an entrepreneur. Creativity can be applied to develop new products and services. There are basically five ways in which creative ideas can be generated. These are:

Develop a new product or service.
Improve an existing product or service.
Find a new process or resource for manufacturing a product.
Find new markets for existing products or services.
Find a new use of an existing product or service.

The factors that help an entrepreneur to identify a
product are:
Application and use: Ideas should be examined for their real-life use and application. If it already exists in the market, we will have to find out its present use and then we may think of modifying it for better use.

Level of operation: This is a crucial test for product/service identification. Depending on the use of the product/service the entrepreneur will produce it in a cottage industry or a small scale-industry or a large-scale industry.

Cost: What is the per unit cost of the product at particular level of operation? Whether this cost is comparable with that of other competitive products? These are some of the questions that have to be answered. This will ultimately decide the sale price.

Competition: Any product or service will face market competition at some stage. So, market competition should be assessed through a study of the trends in demand and supply.

Technical complexity: What type of technology is required to produce the product? Whether training and application of such technology will be locally available or will it have to be supported from other places? What would be the position of supply of plant and machineryfor such a technology? These are important issues that have to be resolved.

Annual turnover and profit margin: Ideas should also have to be examined on the basis of expected annual turnover. This will also indicate the market share of the product or service.

Question 34.
Sanjiv was developing a business plan for his organization. While working on the financial plan he realised that his financial requirements will be for fixed assets and their installations, preliminary expenses, working capital, expenses on research and development and investment in short-term assets viz. raw material, level of cash, etc. To decide on the sources of funds for the venture, he tried to ensure the selection of the best overall mix of financing for the enterprise.
(i) Identify and explain the elements of financial plan discussed here.
(ii) Why is it important for an entrepreneur to ensure the selection of the best overall mix of financing for the enterprise? [5]
Answer:
(i) Proforma investment decisions: This part of financial plan relates to how the enterprise’s funds are invested in different assets so that the enterprise is able to earn the highest possible returns on investment. This part helps to understand the total amount of finance required by the entrepreneur.

Proforma financing decisions: This decision summarizes all the projected sources of funds available to the venture to raise finance from, which you have already studied in previous class. Typically, sources of funds are owners i.e. Owner’s funds and outsiders i.e. Borrowed funds.

(ii) The entrepreneur’s job is to ensure the selection of the best overall mix of financing for the enterprise so that:
The cost of capital and the financial risk stands minimized, Return on investment and profitability stands maximized.