Students must start practicing the questions from CBSE Sample Papers for Class 12 Entrepreneurship with Solutions Set 7 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Entrepreneurship Set 7 with Solutions
Time Allowed: 3 Hours
Maximum Marks: 70
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 (18Marks)
Question 1.
In the drive to make the world ‘plastic free’, Aru designed a machine to convert single-use plastic into very small granules that could be used for making low cost roads. Her machine worked with the help of solar energy. She put her idea before the venture capitalists by making an entertaining slide show and oral narration. She also presented the executive summary of her proposed venture and a few key graphs. The format of business plan used by Aru is: [1]
(A) Elevator pitch
(B) A pitch deck with oral narrative
(C) A written presentation for external stakeholders
(D) An internal operational plan
Answer:
(B) A pitch deck with oral narrative
Explanation: A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation, i.e. the executive summary and a few key graphs showing financial trends and key decision-making benchmark.
Question 2.
Flowing information is related to sales—mix of registers having 100 pages, 200 pages and 300 pages: [1]
| Register | 100 pages | 200 pages | 300 pages |
| Sales Price per Unit | 30 | 40 | 72 |
| Variable Cost Per Unit | 18 | 28 | 38 |
| Sales—Mix Percentage | 20% | 20% | 60% |
| Total Fixed cost is—80,000 | |||
What will be the Weighted-Average-Contribution per unit for the sales—Mix? [1]
(A) 25.6
(B) 35.6
(C) 20.6
(D) 15.6
Answer:
(A) 25.6
| step (1) | 100pages | 200pages | 300pages |
| Sales Price @ Unit | 30 | 42 | 72 |
| Less: Variable Cost @ Unit | 18 | 28 | 38 |
| Gross profit/margin | 12 | 14 | 34 |
Step 2: 12 × 20/100 = 2.4
14 × 20/100 = 2.8
34 × 60/100 = 20.4
Step 3: Weighted Average = 2.4 + 2.8 + 20.4 = 25.6
Question 3.
Assertion (A): An entrepreneur should be a keen listener. He has to create a culture of listening to people.
Reason (R): By this, he will be able to find out the taste, preferences, needs and problems of the people around him. [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: As a risk-taker, an entrepreneur should be keen and have open mind to look for opportunities and generate business ideas. He should be a keen listener. He has to create a culture of listening to people so that he will be able to find out the taste, preferences, needs and problems of the people around him. By his keen interest and alertness he can control on this ventures and face the competition present in the market and ensure that any threats will not cause any problem in the enterprise.
Question 4.
What is a business plan? [1]
(i) It is a comprehensively document.
(ii) It is a written down document.
(iii) It is a road map required by the venture.
(iv) It is a formal statement of a set of business goals to be achieved by the enterprise.
(A) (i) only
(B) (ii), (iii)
(C) (i), (ii) (D)
(D) (i), (ii), (iii) (iv)
Answer:
(D) (i), (ii), (iii) (iv)
Explanation: A 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. It is a road map required by the venture to evolve from an early start up to a mature business.
Question 5.
Rohan, a qualified certified entrepreneur, decided to start a company providing communication services. It was like a dream for him. For him it was a first time to manage a company so he has a fear of involving high risk. However, he lacked the necessary funds and experience to give shape to his idea. He knew that if he failed to get investment from the public, his dream will not turn into reality. So, he made a detailed business plan and presented his idea to a company which is run by a group of professional investors. They were impressed by his business plan and decided to fund his start-up in exchange for an equity stake in the business. The source of finance used by Rohan is: [1]
(A) Angel investor
(B) Venture capitalist
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(B) Venture capitalist
Explanation: Venture capital (VC) is a form of private equity with the type of financing offered by investors in start-up companies and small businesses that are believed to have the potential for long-term growth. Venture funding usually comes from well-off investors, investment banks, and other financial institutions.
Question 6.
Vishal was working with Abhinav, a new entrepreneur, as a Production Manager. For smooth and coordinated flow of work he had to pay attention towards various elements. To ensure predetermined quality of products, he had to compare the performance with established standards. They are discussing about which of the following component of Business plan. [1]
(i) Organisational plan
(ii) Production plan
(iii) Operational plan
(iv) Human resource plan
(A) (i), (ii)
(B) (ii) only
(C) (iii), (iv)
(D) (i), (iv)
Answer:
(B) (ii) only
Explanation: Production, the most important activity of an enterprise, because it is here that transformation of raw material into finished product takes place with the help of energy, capital, manpower and machinery. Picturing ahead every step in a long series of separate operations, each step to be taken in the right place of the right degree, and at the right time and each operation to be done at maximum efficiency is the objective of a production plan.
Question 7.
A factory is engaged in manufacturing shirts. The following information is available. What will be the quantity to be sold at Break-Even Point? [1]
Sales – ₹ 4,00,000
Direct Labour Cost (2,000 units) – ₹ 40,000
Direct Material Cost (2,000 units) – ₹ 1,00,000
Direct Expenses (2,000 units) – ₹ 20,000
Fixed Cost – ₹ 1,20,000
(A) 1,200 units
(B) 1,000 units
(C) 3,000 units
(D) 2,000 units
Answer:
(B) 1,000 units
Explanation: Variable cost per unit=\(\frac{\begin{array}{r}
\text { Direct labour cost + Direct material } \\
+\text { Direct expenses }
\end{array}}{\text { No. of units produced }}\)
= ₹40,000 + ₹1,00,000 + ₹20,000/2,000
= ₹1,60,000/ ₹2,000
= ₹80 per unit
Total cost = Fixed cost + Variable cost
= ₹1,20,000 + ₹1,60,000
= ₹2,80,000
\(=\frac{₹ 1,20,000}{₹ 200-₹ 80}=\frac{₹ 1,20,000}{₹ 120}\)= 1000 units
Question 8.
Assertion (A): The organizational plan helps to ensure long-term effectiveness of the enterprise.
Reason (R): The organizational plan helps the entrepreneur to carefully evaluate and decide that legal structure for his organization. [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).
Question 9.
Assertion (A): Venture capital is an equity-based investment.
Reason (R): Venture capital has been used as a tool for economic development in a variety of developing regions. [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: Venture capital is an equity-based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for minority shareholding in the business or the irrevocable right to acquire.
Question 10.
Priya joined a Publication Company that publishes a monthly magazine “Lifestlye”. It covers articles related to fitness, clothing, gadgets, cooking etc., Priya had joined the clothing division of the magazine. Her divisional head explained her nature of work of the division. She also informed Priya that in addition to visits to local mall she would have to attend “Power lunches” on the first Monday of every month. Out of the following identify the way of spotting trend; the divisional head is talking about: [1]
(A) Talk trends
(B) Read trends
(C) Watch trends
(D) Think trends
Answer:
(C) Watch trends
Explanation: Entrepreneurs make it a point to regularly go where their target customers hang out. If the customers are teenagers, that might be the local mall. If they are business people, it might be the region’s “power lunch” restaurant or office park restaurant center. The entrepreneur spends some time simply watching and observing. What are people eating, doing, wearing, using? What stores or restaurants draw crowds and which sit empty? Trade shows are a great place to get trend ideas, too even if they are not looking to buy product, they attend many shows simply to see what s hot.
Question 11.
Why are capital markets important for entrepreneurs? [1]
(A) Mobilize the financial resources.
(B) Secure the required foreign capital.
(C) Ensure the most effective allocation of the mobilized financial resources.
(D) All of the above
Answer:
(D) All of the above
Question 12.
Balwant Singh of Bikaner thought of air-conditioned houses which do not require electricity. He wanted to explore the idea of construction of such eco-friendly houses which will remain cool in summers and warm in winters. He conceived the idea in 2016 but the final product could take shape in 2020. Identify the stage of creative process mentioned here. [1]
(A) Idea germination
(B) Preparation
(C) Incubation
(D) Illumination
Answer:
(A) Idea germination
Explanation: Idea germination is the seeding stage of a new idea. It is the stage where the entrepreneur recognizes that an opportunity exists.
Question 13.
Ramsaran, an auto-mechanic, was working in a city. But due to ill health of his parents he was compelled to shift to his village. The village was approximately two kilometers away from the nearest highway. He noticed that vehicles which broke down had no repair facility in that area. This gave him an idea to open an ‘Auto-Service- Centre’ for earning his livelihood. He motivated some young boys of his village to join him for providing this service. He trained them and employed them in his workshop. The process which helped Ramsaran in converting an idea into an opportunity is: [1]
(A) Sensing entrepreneurial opportunities
(B) Environment scanning
(C) Problem identification
(D) Spotting trends
Answer:
(A) Sensing entrepreneurial opportunities
Explanation: A prospective entrepreneur has to find an opportunity which would be suitable for him/her in terms of customers to be served and profits expected. An opportunity may be derived from the needs and problems of the society. Sensing entrepreneurial opportunities is thus a process of converting an idea into an opportunity and then into an enterprise.
Read the following passage and answer the question from 14 to question 18.
Mohan is planning to start his own bakery business named The Cake Shop’ after doing a diploma in entrepreneurship. He estimates an investment of ? 10 crores to set up the business. He started doing a lot of hard work and used to learn the recipes in various preparations. He also learnt many recipes to bake different types of cakes and pastries from online sites.
He decided to keep the price of the products low initially to attract customers and also informed his customers about the goodness of the items sold by them. He also decided to make the packaging of the cakes attractive and unique so that customers are persuaded to buy his cakes. However, he didn’t mention on the packets of cakes weather it is veg or non-veg. As a result, vegetarian people became hesitant in buying things from his shop as they had to verbally inquire from him about the inclusion of eggs in the preparation of various items.
Question 14.
Which of the following aspect related to the marketing of products has been ignored by Mohan? [1]
(A) Labelling
(B) Packaging
(C) Transportation
(D) None of these
Answer:
(A) Labelling
Explanation: labeling is the display of information about a product on its container, packaging, or the product itself. Labeling refers to designing and developing the label to be put on the package. The label may vary from a simple tag to complex graphics. One of the most important functions of labels is to describe the product, its usage, cautions in use, etc. and specify its contents.
Question 15.
Which of the following component of marketing mix is highlighted in the below mentioned line?
“He decided to keep the price of the product slow initially to attract customers” [1]
(A) Promotion
(B) Price
(C) Place
(D) Product
Answer:
(B) Price
Explanation: Price refers to the value that is put on a product. It depends on cost of production, segment targeted, ability of the market to pay, supply-demand and a host of other direct and indirect factors. There can be several types of pricing strategies, each tied in with an overall business plan. Pricing can also be used as a demarcation, to differentiate and enhance the image of a product.
Question 16.
“The Cake Shop” mentioned in the above text is a: [1]
(A) Brand
(B) Brand name
(C) Brand mark
(D) Trade mark
Answer:
(B) Brand name
Explanation: That part of a brand, which can be spoken, is called a brand name. In other words, brand name is the verbal component of a brand. For example, Asian Paints, Saffola, Maggie, Lifebuoy, Dunlop, and Uncle Chips are the brand names.
Question 17.
A brand is a: [1]
(A) Name and term
(B) Sign and symbol
(C) Design or a combination
(D) All of the above
Answer:
(D) All of the above
Explanation: A brand is a name, term, sign, symbol, or design or a combination of them which is intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of the competitors.
Question 18.
Identify the method of pricing mentioned in the passage? [1]
(A) Cost-plus pricing
(B) Penetration pricing
(C) Creaming pricing
(D) All of the above
Answer:
(B) Penetration pricing
Explanation: Penetration pricing is a pricing strategy where the price of a product is initially set at a price lower than the eventual market price to attract new customers. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.
Section – B (12Marks)
Question 19.
Write any two steps by which creativity can be designed into an enterprise? [2]
OR
Why does a study of the environmental factors become important for an entrepreneur? Explain briefly.
Answer:
Creativity can be designed into an enterprise by the following steps:
1. Having open channels of communication and allowing contacts with outside world promotes creativity.
2. Using teams for solving the problems is more likely to yield creative solutions.
3. Decentralised organisational structure with loosely defined positions and loose controls are more creative.
4. Playful culture, freedom to discuss ideas and long-term horizon of an enterprise promotes creativity.
5. Enterprise is made creative when resources are allocated to creative personnel without caring for payoff.
OR
Study of environmental factors becomes important for an entrepreneur because it helps to develop an understanding of social, economic, political and other developmental factors in order to ensure that perceived entrepreneurial opportunities are compatible with them.
Question 20.
‘Pure Neer India Ltd.’ is the manufacturers of water purifiers. The company has developed a new water purifier that not only converts the hard water into soft water but also kills the bacteria and other harmful microorganisms present in it. The company has named this water purifier as ‘Nirmal Neer’ and for its marketing, appointed salesmen throughout the country. The company also trained the salesmen to provide information about the usefulness of the ‘Nirmal Neer’ water purifiers to the customers and motivate them to buy the same.
1. Name and explain the type of promotional tool adopted by the company.
2. Also identify the channel of distribution used by the company. [2]
Answer:
1. Personal selling: It 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 salesperson to contact prospective buyers and create awareness about the company’s product.
2. Direct channel/zero level of distribution.
Question 21.
‘Sultan Trucks Ltd.’ are the manufacturers of commercial trucks for the last 20 years. The company has been doing good business but recently due to irregularity of supply of parts from the supplier, the company could not make timely delivery of trucks to the parties who had booked their trucks. The customers cancelled their bookings 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 the trucks and other axles to the company. [2]
The company also extended credit facilities to the customers and started booking trucks without charging any booking amount. It also decided to employ 100 unemployed youth with 50% reservation for women to take up the cleaning process, using the imported machines, inside the factory as well as the surrounding areas. Identify and explain the concept of growth strategies discussed in the above para.
Answer:
The concept of growth strategy discussed here is acquisition. It 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.An acquisition, also known as a takeover, is the buying of one company (the target) by another.
Question 22.
What is meant by seed capital financing? What the entrepreneur has to do to convince the investor to get money? [2]
OR
Explain briefly the benefits and drawbacks of angel investors.
Answer:
Seed capital financing refers to the capital required by an entrepreneur for conducting research at pre commercialization stage. During this stage, the entrepreneur has to convince the investor (VC) why his idea/product is worthwhile. The investor will investigate into the technical and the economic feasibility of the idea. As the risk element at this stage is very high, investor (VC) may deny to assist if he does not see any potential in the idea. Thus, the entrepreneur has to convince that his idea was worthwhile to the investor.
OR
Benefits: The Angel Investors provide cash to kick the enterprise to next stage or to start up the enterprise. They also provide mentoring service with their experiences and since their money is involved, they will already seek success of the business.
Drawback: There is a loss of 10 to 50% control over own business as angel investors provide cash against equity and in future there is a chance of being out from the self-created company.
Question 23.
Read the following passage about ABC industries ltd. and identify and explain the entrepreneurial planning done by it. ABC Industries Ltd. was set up in 1980 as a textile-based industry. The industry had a team of professionals and experts to draft a comprehensive yearly document with all the relevant details of internal and external elements in meaning the venture. This document acts as a decision-making tool for the management. The document contains all necessary information which will help the management to frame its policies and take important decisions in the day to day running of the business. The Chief Executive Officer of the company always pays special focus on one element of this document that ensures the orderly flow of materials from raw state to finished product with a proper system of quality control, as according to him ‘work your plan’ is more important than ‘plan your work’. [2]
Answer:
The ABC industries Ltd. was engaged in making business plan. 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. It’s a formal statement of a set of business goals, the reasons they are believed attainable and the plan for reaching those goals along with the background information about the organization or/and team attempting to reach those goals.
Question 24.
Give the meaning of ‘Business situation analyses’ and ‘Identification of target market’ as steps in preparing the marketing plan. [2]
OR
What are the key areas to work on a sound financial plan? State any four.
Answer:
1. Business situation analysis: Involves a review of past performance and achievements of the enterprise including personal profile of the entrepreneur, product development, the consumer needs satisfied etc.
2. Identification of target market: It involves defining clearly the specific group of potential customers whose needs the enterprise aims to fulfill.
OR
Following are the key areas to work on a sound financial plan:
1. Financial Requirements
2. Sources of raising funds
3. Investment of funds in different assets
4. Exact assessment of revenue, cost, profits, stock, etc.
5. The amount of cash flows
6. Socio-economic benefits expected from proposed investment
Section – C (15Marks)
Question 25.
Explain the meaning of environmental analysis. Identify the sources used for scanning environment [3]
OR
‘An idea that is not assessed for its opportunity potential may fail in business.’ Comment on this statement with appropriate examples.
Answer:
Environmental analysis is the process of monitoring the economic and non-economic threats to an organization. Such an analysis involves data collection, information processing and forecasting to provide a rational basis for developing goals and strategies for business survival and growth. Information for environmental scanning can be collected from several sources. These include:
1. Verbal information from customers, wholesalers, retailers, distributors, consultants, etc.
2. Records of companies
3. Government publications
4. Publications by various financial institutions
5. Formal studies conducted by strategic planners.
OR
Earlier people used to believe that entrepreneurs are born, not made but now the concept has totally changed. An idea that is not assessed for its opportunity potential may fail in business. For example, an NRI on the advice of his friends launched an herbal farm by investing huge amount for the purchase of agricultural land and developed irrigation system. But the venture was an early disaster. The reason was that the entrepreneur was unsuccessful in fulfilling the requirement of the purchasers due to delayed deliveries. This venture folded up in a very short time.
Question 26.
“An old marketing adage says that nothing happens until someone buys something-in short, sales drive every aspect of business. In every company, the salespeople are the front-line troops. In the rough-and-tumble of the marketplace, the slickest manufacturing processes, the shrewdest marketing, the brightest corporate reputations won’t make the sale without the face-to-face (at least usually) meeting of seller and buyer.”
1. Identify and explain the tool of promotion stated in the above article.
2. Explain any one more tool of promotion mix other than the specified above in (i). [3]
OR
What are the three steps involved in the process of sensing entrepreneurial opportunities?
Answer:
Personal Selling: 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 salesperson to contact prospective buyers and create awareness about the company’s product.
Other tools of Promotion:
Sales Promotion: Sales promotion refers to the short-term incentives, other than advertising and personal selling which are designed to encourage the buyers to make immediate purchase of a product or service.
Advertising: Advertising refers to any paid form of non-personal presentation and promotion of goods and services by an identified sponsor to make people aware about the goods and services.
Public Relations: It involves variety of activities designed to promote or protect company’s image and its individual products in the eyes of public.It is the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation (and individual) and its (or their) public.
OR
(1) Spotting an opportunity by analyzing the needs and problems that exist in the environment.
(2) Evaluating the ideas received from difference sources to find a creative solution.
(3) Identifying a product or service through innovation.
Question 27.
Name and explain the three stages included in early stage financing.
OR
What are the additional obligations and reporting requirements of going public? [3]
Answer:
Early stage financing includes:
Seed capital: It refers to the capital required by an entrepreneur for conducting research at pre commercialization stage. During this stage, the entrepreneur has to convince the investor (VC) why his idea/product is worthwhile. Entrepreneur’s ability,technological skills and competencies are required to match with the market opportunities so as to successfully convince about product/idea’s feasibility to the venture capitalist.
Pre-start up and start up: If the idea/product/ process is qualified for further investigation and/or investment, the process will go to the second stage; this is also called the start-up stage. Abusiness plan is presented by the entrepreneur to the VC firm. The management- team establishes a feasible production line to produce the product. The VC firm monitors the feasibility of the product and the capability of the management-team from the board of directors.
Second round financing: At this stage, we presume that the idea has been transformed into a product and is being produced and sold. As this time, larger funds than the other early stage financing are required,entrepreneur should be extra careful because only if he and his management team is able to prove their capability of standing against the competition, only then is the VC firm interested in financing.
OR
Some of the additional obligations and reporting
requirements of going public are:
- Increasing accountability to public shareholders.
- Need to maintain dividend and profit growth trends.
- Becoming more vulnerable to an unwelcome takeover.
- Need to observe and adhere strictly to the rules and regulations by governing bodies.
- Increasing cost in complying with higher level of reporting requirements.
- Relinquishing some control of the company following the public offering.
- Suffering a loss of privacy as a result of media interest.
Question 28.
Manish wants to start a small toy manufacturing factory. As a part of his business plan, he prepared an ‘entertaining slide show and oral narrative’ to trigger discussion and create interest in potential investors for reading the written presentation. Explain the formats available to design a successful business plan.
1. Identify and explain the format of business plan referred above.
2. Explain briefly any other format of business plan. [3]
Answer:
1. Elevator Pitch: It is a three-minute summary of the business plan’s executive. This is often used as a teaser to awaken the interest of potential funds, customers or strategic partners.
2. Other formats of a business plan:
- A Pitch Deck with Oral Narrative: A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation i.e., the executive summary and a few key graphs showing financial trends and key decision-making benchmark.
- A Written Presentation for External Stakeholders: A detailed well written and pleasingly formatted plan targeted at external stake holders.
- An Internal Operational Plan: A detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders.
Question 29.
Two years back Naresh, started a small business of manufacturing ethnic shoes under the brand name Mocharies (footwear) in one of the backward areas of Rajasthan. He is having more than 10 employees who are the local artisans, for this work. He has also employed two sales agents to deliver the goods in nearby urban areas. He got very good response for his ethnic and attractive shoes, Mocharies. Excited by the response he expanded his business in other states also.
He opened more branches in his local area and also gave franchise to new enterprise Messers Ram & Sons, a footwear manufacturing company to use this brand name to sell its product in the market. He signed a franchise agreement. Out of the Royalty so received, he organised a training programme, for the employee of manufacturing department of his franchisee and also conducted advertising for his branded shoes. Explain the main ingredients of franchise agreement. [3]
Answer:
The main ingredients of a franchise agreement:
Contract Explanation: The contract explanation is the part of the agreement that outlines the type of relationship a franchisee is entering into with the franchisor.
Operations Manual: The operations manual is the section of the agreement that details the guidelines that the franchisee must legally follow in operating the business as outlined by the franchisor. From time to time amendments may be made and the franchisee must be prepared to adjust operations accordingly. The franchisee needs to be aware that the contents of the document are confidential.
Proprietary Statements: Proprietary statements outline how the franchise name is to be used, as well as the marketing and advertising procedures in place that the franchisee will be required to follow. Also, the franchisor documents how much the franchisee will be required to contribute toward national advertising efforts.
Ongoing Site Maintenance: Ongoing site maintenance is another item that is outlined in the agreement. Included are the types and timeframes regarding various maintenance items and upgrades that must be made to the franchisee’s location.
Section-D (25Marks)
Question 30.
‘Hi-Fi Company is the manufacturer of school uniforms. Their main items were Shirts, Pants and Socks. Fixed cost of production was Rs. 1,53,600. Sales price and variable cost per unit were as follows: [5]
| Shirts | Trousers | Socks | |
| Sales Price | 126 | 216 | 90 |
| Variable Cost | 84 | 114 | 54 |
Sales mix percentage of the three products was 20%, 60%, and 20% respectively. Find out the Break-Even-Point in units and rupees.
Answer:
| Products: | Shirts | Trousers | Socks |
| Sales price per unit –Variable cost |
126/- 84/- |
216/- 114/- |
90/- 54/- |
| Contribution margin per unit × sales mix percentage |
42 20% |
102 60% |
36 20% |
| ₹8.4/- | ₹61.2/- | ₹7.2/ |
Sum weighted Average CM per unit ₹76.8/-Break even points in units of sales mix = Total fixed cost ÷ weighted CM per Total fixed cost = ₹1,53,600
÷ weighted Average CM per unit = ₹1,53,600 Break even point in unit of sales mix = ₹2000
Number of units of products break even point
| Product: | Shirts | Trousers | Socks |
| Sales mix ratio X Total break even units | 20%
2000 |
60%
2000 |
20%
2000 |
| Product units at break even point | 400 | 1200 | 400 |
Break-even points in rupees
| Product: | Shirts | Trousers | Socks |
| Product units at break even point X price per unit | 400
126/- |
60%
2000 |
20%
2000 |
| Product units at break even point | 400 | 1200 | 400 |
Sum: Break even point in Rupees: = ₹3,45,600
Sum: Break even point in Rupees: = ₹3,45,600
Question 31.
Suprabh was trained under ‘Skill-India- Programme’ and was carefully monitoring the environment for detecting early signs of opportunities. Under the ‘Skill-India-Programme’, he was sensitized about different uses of waste materials. He grabbed this opportunity and decided to use old newspapers and notebooks to prepare file covers for students with an art called ‘paper-mache’.
He formulated plan of action to capitalize on the opportunities in the market. He decided to procure the raw materials from scrap dealers based in each locality to create a recyclable resource generation. This way he was not only able to contribute to the environment but was also able to improve the profits of his business. Explain the benefits Suprabh had by understanding the environment. [5]
Answer:
Benefits of understanding environment:
Identification of opportunities to get first mover advantage: By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalise on the opportunities at the earliest.
Tapping useful resources: If the company has a thorough knowledge of the external environment, it can tap raw materials, technology and even financial resources from the market at economical prices, at the right time.
Better performance: Proper understanding of the various elements of the external environment is necessary to take timely action to deal with threats and avail opportunities for the purpose of improvement in the performance of the firm.
Image building: If a company is sensitive to the external environment, it will come out with new products and services to meet the requirements of the customers. This would build the image or reputation of the firm in the eyes of the general public. For example, call-radio taxis with additional features like GPS systems, online booking etc.
Sensitisation of entrepreneurs to cope up with rapid changes: A keen watch on the trends in the environment would help sensitise the entrepreneur to changing technology, competition, government policies and changing needs of the customers. For example, trends in clothing.
Formulation of strategies and policies: It helps in identifying threats and opportunities in the market. These can serve as the basis of formulation of strategies to counter threats and capitalise on opportunities in the market.
Question 32.
“Skimming is usually employed to reimburse the cost of investment of the original research into the product.
This strategy is often used to target early adopters of a product or service.” Analyze the statement by explaining the advantages and disadvantages of skimming method. [5]
OR
What are the different activities that an entrepreneur can undertake to expand his enterprise?
Answer:
Selling a product at a high price, sacrificing high sales to gain a high profit is therefore “skimming” the market. Skimming is usually employed to reimburse the cost of investment of the original research into the product commonly used in electronic markets when a new range, such as smart phones, are firstly dispatched into the market at a high price. This strategy is often used to target “early adopters” of a product or service. Early adopters generally have a relatively lower price-sensitivity.
Advantages of skimming price:
Price skimming helps the company in recovering the research and development costs which are associated with the development of a new product.
If the company caters to consumers who are quality conscious rather than price conscious, then this type of strategy can work in a great way for a company.
Disadvantages of skimming price:
This strategy can backfire if there are close competitors and they also introduce same products at lower price than consumers will think that the company always sells the products at higher prices which will result in consumers abandoning other product of the company also.
Price skimming is not a viable option when there are strict legal and government regulations regarding consumer rights. If the company has history of price skimming then consumers will never buy a product when it is newly launched, they would rather wait for a few months and buy the product at lower price.
OR
An entrepreneur can undertake following activities to expand his enterprise:
Raising the level of production: By raising the level of production, the volume of the product produced increases. This leads to expansion.
Adding another unit of production: By keeping the present unit and adding a new unit of production an enterprise can be expanded.
Increasing the number of employees: With the increase in the strength of the employees, the expansion takes place provided it is associated with the rise in production.
Adding more machines: By adding more machines to the existing ones, the turnover also increases. This is referred as expansion.
Opening an ancillary unit: If the product of one company can be used as a raw material for the other product, then a new enterprise can come into existence which is dependent on the main. If the parent company and the ancillary unit are of same enterprise, it is also leading to expansion.
Question 33.
Mohan, Sahil, Arjun and Ashok were childhood friends. All of them were well settled and had good earnings. They were creative and innovative and wanted to start a business. Mohan and Arjun gave an idea to manufacture an electronic machine which would help a lot of households in doing their work. Sahil and Ashok agreed to it, but they were short of capital. They estimated that approximately ₹5 crores would be required to finance the project. They also wanted that their private properties should not be used to pay off the liabilities of the business.
1. Considering the above facts suggest a suitable ‘type of business organisation’ to be formed.
2. State any two features of the suggested type of business organisation, including the one stated in the above para.
3. List any two privileges of this type of business organisation. [5]
OR
Explain the factors that help an entrepreneur to identify a product.
Answer:
1. Private Ltd. Company (Joint Stock Company)(1)
2. Features of company are:
Has a minimum of 2 and maximum of 50 members excluding its part and present employees. Restrict the right of its members to transfer shares. Prohibits an invitation to the parties to subscribe for any shares in or debentures of the company, or accepts any deposits from persons other than its directions, members or relatives. Minimum paid-up capital of ‘1.00 lakh Uses the word ‘Pvt. Ltd.’ at the end of its name.
3. Privileges of this business angulation are:
It is not compulsory for a private company to maintain index of its members. It is also not compulsory for a private company to hold a statutory meeting and file a statutory report with the Registrar, whereas it is essential for a public company.
Private company can commence its business after getting certificate of registration whereas public company can start business only after receiving the certificate for the commencement of business. It is not necessary for a private company to issue a prospectus, whereas it is mandatory for a public company.
OR
(i)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, then we may think of modifying it for better use. (ii)Level of operation: This is a crucial test for product/service identification.
Question 34.
What is meant by primary market? Briefly explain the concept of “Right Issue for existing companies and Offer to the employees”. [5]
OR
Explain the concept of Return on Equity (ROE). How is it calculated?
Answer:
Primary market is basically meant to facilitate
transfer of resources from the savers to the
entrepreneurs seeking funds for:
1. Setting new enterprises
2. Expansion
3. Diversification.
Right Issue: Right 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. It is proposed through a circular to all the existing shareholders only. It is not mandatory to purchase these shares if any shareholder is not willing to subscribe. They can reject or disclaim and others can subscribe for it.
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 leading to:
1. Higher efficiency
2. Low labour turnover
3. Better industrial locations
4. Low floatation cost
5. Wider/higher generation of funds
OR
ROE measures the profitability of the company from common stockholder’s (Equity shareholder’s) point of view. This is calculated to find out how efficiently the funds supplied by equity shareholders, have been used. It is the expectation of high return that motivates equity shareholder to continue with the company and the new investors to put their money in company’s share.
It is computed by dividing net income available for equity shareholders by average equity shareholders’ fund. When preference shareholders are present, the preference dividends are deducted from net income to compute income available for equity stockholders.
ROE = Net profit after tax – Preference dividend / Equity shareholder’s fund X 100 Higher is the ratio, the more efficient the management and utilization of equity shareholders’ fund. The return on equity may be substantially higher than its return on assets due to trading on equity.