Students must start practicing the questions from CBSE Sample Papers for Class 12 Entrepreneurship with Solutions Set 8 are designed as per the revised syllabus.
CBSE Sample Papers for Class 12 Entrepreneurship Set 8 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 (18 Marks)
Question 1.
Suraj and Chandni are a young couple with a three-year-old daughter Roshni. Suraj is employed with a multinational company and is posted in Spain. Chandni is also working as an executive with an IT firm in Gurugram and is staying with her in-laws in a locality of South Delhi. She wants to admit her daughter in a reputed day boarding school but is unable to visit the schools and identify one where she could admit Roshni.
She discussed the problem with Suraj. Suraj identified the problem and advised Chandni to hire a computer operator who could collect data related to admission in nursery classes by visiting the websites of different schools located in Delhi and NCR. He also advised Chandni to launch her own website _www.nurseryadmission.com and upload the data so collected on it so that the same could be used by other parents like them for admission of their wards.
Chandni followed the advice of Suraj and appointed a computer operator. She provided all facilities to him in the basement of her home. A large number of parents visited the website started by Chandni on an online payment of ? 100 per visit. The entrepreneurship concept discussed in the above para is: [1]
(A) Product Identification
(B) Idea field
(C) Idea Generation
(D) Creative efforts
Answer:
(A) Product Identification
Explanation: An idea should lead the entrepreneur to a definite product/service that he can sell. So, the first step is to obtain a concept of the product or service suggested by one idea. An entrepreneur also sees whether this product is already available in the market or not. If it is, then we should identify the reason for introducing the same product or service in the market.
Question 2.
The Chief Executive Officer of Yashshree Ltd. always pays special focus on one element of a business plan 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. Out of the following, identify the element that is the priority of the CEO of the company: [1]
(i) Operational plan
(ii) Financial plan
(iii) Production plan
(iv) Human resource plan
(A) (i) only
(B) (ii), (iii)
(C) (ii), (iv)
(D) (iii) only
Answer:
(A) (i) only
Explanation: The operational plan is actually a blueprint prepared right in advance of actual operations ensuring orderly flow of materials in the manufacturing process from the beginning (raw state) to the end (the finished products), facilitating continuous production, lesser work-in-progress and minimization of wastage, coordinating the work of engineering, purchasing, production, selling and inventory management etc.
Question 3.
A grocery store sold in a day different quantities of different products at the prices indicated against them:
| Products | Price Per Unit (?) | Quantity Sold |
| Dal | 40/kg | 35 (kgs) |
| Chilli Powder | 40/kg | 10 (kgs) |
| Salt | 5/packet | 5 (packets) |
| Chips | 15/packet | 10 (packets) |
| Juice Pack | 5/packet | 5 (packets) |
The shopkeeper also found, based on the number of bills issued by him, that there were 50 customers. If a customer is the unit sale, what is the “Unit Price” in the above case?
(A) ₹30
(B) ₹45
(C) ₹40
(D) ₹15
Answer:
(C) ₹40
Explanation :
\(\begin{aligned}
&\text { Explanation: Unit Price }=\frac{\text { Total Billed Amount }}{\text { Number of customers }}\\
&=\frac{\begin{array}{c}
{[(₹ 40 \times 35)+(₹ 40+10)+(₹ 5 \times 5)} \\
+(₹ 15 \times 10)+(₹ 5 \times 5)]
\end{array}}{50}
\end{aligned}\)
=₹40
Question 4.
‘Anjali Organic Farms Ltd.’ wants to grow rarely found medicinal herbal plants that can cure various diseases and are of extreme utility in increasing immunity. For this, the entrepreneur has convinced one venture capital investor to finance the research and development activities and relevant activities. The same VC Investor is financing its competitor firm ‘Sanjeevani Ayurvedic Ltd.’ also.
Sanjeevani Ayurvedic Ltd. is also in need of funds for their new project. Venture capitalists decided to extend venture capital to ‘Sanjeevani Ayurvedic Ltd.’. With reference to this case, which of the following considerations should venture capitalists make before extending venture capital to an entrepreneur? [1]
(A) Due diligence
(B) Cost of venture capital
(C) Exit option
(D) All of the above
Answer:
(D) All of the above
Question 5.
There is_______relationship between opportunities and problem-solving. [1]
(A) Direct
(B) Indirect
(C) Proportional
(D) Circular
Answer:
(A) Direct
Question 6.
Assertion (A): Environment analysis is the process of monitoring the economic and non-economic environment.
Reason (R): Environment analysis involves data collection, information processing and forecasting. [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: Environment analysis is the process of monitoring the economic and non-economic environment, to determine the opportunities and 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.
Question 7.
Assertion (A): A good financial plan has scope for making changes in the future.
Reason (R): A good financial plan has clearly defined objectives. [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: A good financial plan has scope for making changes in the future. The plan is made flexible considering future obligations and future plans of the enterprise.
Question 8.
A factory is engaged in manufacturing coolers. The following information is available. What will be the break-even point of a factory? [1]
Sales = ₹2,50,000
Direct Labour Cost (for 100 units) = ₹25,000
Direct Material Cost (for 100 units) = ₹62,500
Direct Expenses (for 100 units) = ₹12,500
Fixed cost = ₹75,000
(A) 50 units
(B) 100 units
(C) 200 units
(D) 10 units
Answer:
(A) 50 units
Explanation:
\(\begin{aligned}
&\text { Variable cost per unit }=\frac{\text { Total cost }-\text { Fixed cost }}{\text { No. of Units Produced }} \\
&\text { Variable cost per unit }=\frac{₹ 1,75,000-₹ 75,000}{100}
\end{aligned}\)
Variable cost per unit = ₹1,000
OR
Variable cost per unit = Variable Cost/No. of units
produced
\(=\frac{₹ 25,000+₹ 62,500+₹ 12,500}{100}=₹ 1,000\)
Total Cost = Variable cost + Fixed cost
= (₹25,000 + ₹62,500 + ₹12,500) + ₹75,000
= ₹1,75,000
Break-even
\(\begin{aligned}
&=\frac{\text { Fixed cost }}{\text { Selling price per unit }-\text { Variable cost per unit }} \\
&=\frac{₹ 75,000}{₹ 2,500-1,000}
\end{aligned}\)
= 50 units
Question 9.
Ravi created a portable incinerator to be installed in the houses. The dry waste generated at homes can be converted by it into ash that can be used as manure for plants. He has installed five prototypes of this incinerator in his society to test its working and to prove its value. Ravi is in the which stage of his product? [1]
(A) Preparation
(B) Incubation
(C) Illumination
(D) Verification
Answer:
(D) Verification
Explanation: Verification is also called the validation or testing stage. This is where the idea is verified to prove that it has value. This is the most difficult phase of creativity as obstacles begin to appear. This is the developing stage in which knowledge is developed into the application.
Question 10.
Assertion (A): A shorter operating cycle is more favorable.
Reason (R): The cash conversion cycle is the length of time between a firm’s purchase of inventory and the receipt of cash from accounts receivable. [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: A shorter operating cycle is more favorable as it means the company has enough cash to maintain operations, recover investments and meet various obligations. In contrast, if a business has a longer operating cycle, it means the company requires more cash to maintain operations.
Question 11.
Anjali who is doing graduation from Delhi University has got an idea to make a safety gadget for college-going girls which will give alert messages to the registered numbers as well as the nearest police stations if the wearer is in any kind of danger. To execute her idea, she requires finance. She convinced one of her teachers who has knowledge of making such gadget to provide her finance for feasibility studies. Identify the source of funding used by Anjali. [1]
(i) Angel investor
(ii) Venture Capital
(iii) Capital market
(iv) Primary market
(A) (i) only
(B) (ii) only
(C) (i), (iii)
(D) (ii), (iv)
Answer:
(A) (i) only
Explanation: A business angel or informal investor or an angel investor, is an affluent individual who provides capital for a business start-up and early-stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity. They fill the gap in start-up or early stage financing between “friends and family”, by providing seed funding and formal venture capital.
Question 12.
Hina was manufacturing beauty products and was always on the lookout to improvise her products. She used social media and online surveys to understand the latest trend in customer needs and overall cosmetics industry. Through the surveys, she understood that the customers prefer natural ingredients like Multani Matti or neem in place of chemicals in the beauty products. Responding to customer’s needs, she developed the “Multani Mitti cum Neem Face Pack” in an attractive package. It was highly-priced as she knew that the customers will be ready to pay the price for the quality. Her face pack was an instant success. Out of the following, identify the way in which Hina spotted this trend: [1]
(A) Think trend
(B) Read the trend
(C) Watch the trend
(D) None of these
Answer:
(A) Think trend.
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 13.
Which of the following is the feature of sole proprietorship? [1]
(A) Limited liability
(B) Difficult to form
(C) Difficult to dose
(D) Individual management and control
Answer:
(D) Individual management and control
Explanation: As all the rights and responsibilities lie with the sole proprietor that is why he controls all the business activities. What is to be done, how it is to be done, and when it is to be done, all affairs are managed and controlled by the sole proprietor. No one can interfere in the business activities of a sole proprietor. Hence, only the sole proprietor can modify his plans accordingly.
Read the following passage and answer the question from 14 to question 18.
Help India is an NGO who after doing a laboratory test found that the soft drink by the name ‘Refresh’ produced byan MNC contains ingredients which are very harmful to health but the company has not mentioned them anywhere in the label of the product package. Help India called a press conference and revealed the reports of the test for the product claiming that it contains harmful preservatives and also beyond the permissible limits and regular intake of such drink can cause cancer. It was breaking news on TV channels, newspapers, Radio, Magazines etc.
As a result, people stopped consuming that drink. This gave a big shock to the company’s sales and consequently, its revenue decreased drastically in short time. This impaired and blemished the company’s goodwill and reputation in the market and has also reduced the sale of other products under same brand. To overcome this situation, the top executive of the company decided to issue press release clarifying that the company has stopped using harmful stuff and label contains all the required information as per the law. The company also made a multimedia presentation of its production process and future plans to promote its sales.
Question 14.
Identify the concept used by the company to rebuild its image and to remove negative publicity. [1]
(A) Sponsorship
(B) Sales promotions
(C) Public relations
(D) Personal selling
Answer:
(C) Public relations
Explanation: It is the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organization and its public. Public relations are about building good relations with the stakeholders of the business by obtaining favourable publicity, building a good corporate image and handling or heading off unfavorable rumors, stories and events.
Question 15.
Which tools of public relations is highlighted in the below-mentioned lines: “It was a breaking news on TV channels, newspapers, Radio, Magazines, etc.” [1]
(A) News
(B) Printed material
(C) Both (A) and (B)
(D) None of these
Answer:
(C) Both (A) and (B)
Explanation: By using public relations (PR) tools and activities, an enterprise can promote positive attitudes and behaviors towards its business that will help convert interested consumers into customers. These include oral communication, the printed word, broadcast messages, and exhibitions. In other words, these are the different tools used for communication in public relations.
Question 16.
Why labeling of a product is important? [1]
(A) Describe the Product and Specify its Contents
(B) Identification of the Product or Brand
(C) Providing information required by Law
(D) All of the above
Answer:
(D) All of the above
Explanation: Labelling is an important part of the marketing of a product. Labeling is essential as it helps to grab the attention of a customer. A person can find out about the ingredients of a product. This helps to spread awareness among the customers about the item they are consuming and labeling also helps to mention ingredients. Labeling should also contain information relating to whether the product has harmful chemicals or not.
Question 17.
Which of the following is an objective of public relations? [1]
(A) It works towards promoting smooth functioning of the business.
(B) It helps in building a corporate image.
(C) It acts towards promoting the products and services.
(D) All of the above
Answer:
(D) All of the above
Explanation: Public relations work towards promoting smooth functioning of the business and the achievement of the objectives of the organization. It helps in building a corporate image and creating a favorable impression and credibility of the products and services offered by the company or business in the eyes of the public. It acts towards promoting the products and services, similar to the lines of advertising and thus helps businesses in selling its products and services.
Question 18.
Which of the following promotion methods use mass media methods? [1]
(A) Above-the-line
(B) Below-the-line
(C) Through-the-line
(D) None of these
Answer:
(A) Above-the-line
Explanation: Above-the-line promotion focuses on advertising to a large audience. It includes conventional media like print, online, television and cinema advertising. Above-the-line activities include advertisements in the press. They also produce online banner advertisements, place advertisements on billboards and use their website to meet the needs of their consumers.
Section – B (12 Marks)
Question 19.
Ragini, a career-oriented mother, hardly got time to cook for the family. She decided to hire a cook but was not able to find one who could cook according to the taste of the family. Her sister Abha sensed that this problem is not only faced by her sister but also by many working women. She launched a website namely ‘Dial for food’ where housewives who had culinary ability and were interested to cook could drop in their contact details and households where specific cuisine was required could leave in their requirements so that through the website home cooked food could be delivered. The website mainly helped in identifying the requirement and fulfilling it through providing delivery service. Identify any two uses of problem identification to Abha. [2]
Answer:
- Bring out new products in the market.
- Increase employment generation.
- Understand the problems and needs of the market.
Question 20.
“Branding plays an important role in Marketing.” How? Explain.
OR
Explain ‘Distribution Mix’ as an element of ‘Marketing Mix. [2]
Answer:
Branding is useful in the following ways:
(1) Identification: A product and its enterprise get its identification by its brand name. This reduces the advertising cost.
(2) Differentiation: Brand name helps in differentiating one product with the another. Any particular brand can be easily differentiated from its competitors.
(3) Better Understanding: Brands develop better understanding of customers with the product. This increases loyalty and consequently reduces Marketing efforts.
OR
Distribution Mix: It is also known as place mix. It is concerned with movement of goods from the place of production to the place of consumption, at right time. It consists of producers, consumers or users and the various middlemen like wholesalers, retailers, etc. Therefore, the channel serves to bridge the gap between the point of production and the point of consumption thereby creating time, place and possession utilities.
Question 21.
Kamal Ltd. is a manufacturer of textiles, having their plant in Surat, a city of Gujarat. Vastra Ltd. is a manufacturer of ready-made garments and sells its products throughout the country. It also exports their products to America and European countries. Vastra Ltd. source their textiles from Kamal Ltd. The management of the two companies decided to merge to have economies of large-scale production. Identify the type of merger entered into by Kamal Ltd. and Vastra Ltd. [2]
Answer:
Vertical merger: A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.
Question 22.
What is seed capital?
OR
“Venture capital is a high risk-high return business.” Comment. [2]
Answer:
The capital needed to set up a new business or enterprise is called seed capital. It can be obtained from owners or his/her relatives or from outside sources. It is that money used for the initial investment in a project or startup of a company to prove the feasibility of the project and quality of startup capital. To avail this source of finance entrepreneurs may concern and contact various agencies and financial institutions.
OR
The high risk is due to the fact that projects are untested and are undertaken by people with no experience. The targeted long-term returns from venture capital investment are very high. While investing in venture capital, the common profit targets of investors are “triple the money in three years” or “multiply money seven times in five years” or “earn a compound annual rate of return of 48%, followed by 35-40% in second stage and 25% per annum in third stage”.
Question 23.
Read the following passage and identify and explain the elements in the PESTEL model which is present in this passage.
Shiny on visiting her friend Rita in Kashmir, found it be an ideal place to start a new business venture. She started scanning and screening the environment and found that Kashmir is rich in flora and fauna, free from air and land pollution. Kashmir does not prefer to wear western dress. Because of persistent political unrest and terrorism, a number of residents are unemployed. Local Kashmir is getting subsidies to open schools in backward areas of Kashmir. [2]
Answer:
Ecological factor: Ecological factor considers the ways in which the organization can produce its goods or services with minimum environmental damage.
Social factor: The social/cultural environment includes population demographics, social mobility, income distribution, lifestyle changes, attitudes to work and leisure, levels of education and consumerism.
Economic factor: The economic environment includes interest rates, inflation, business cycles, unemployment, disposable, income, energy, availability and cost.
Question 24.
What is meant by a target market? In which type of business plan, it is identified?
OR
“Writing a good business plan can’t guarantee success but it can go a long way towards reducing the odds of failure.” In the light of above statement state the objectives of a good business plan. [2]
Answer:
Target market refers to the specific group of potential customers whose needs and wants the enterprise aims to fulfill. For a new venture, it’s very essential to define clearly the specific group of potential customers whose needs the enterprise aims to fulfill. This identification of the “target market” is pretty tedious task as it involves deciding what the general market or industry entrepreneur wishes to pursue is based, on market research or industry analysis done and complied with by competent people or entrepreneurs. It is identified under the marketing plan.
Section – C (15 Marks)
Question 25.
“This mode of expansion allows entrepreneurs to be in business for themselves but not by themselves.” Identify and explain the mode of expansion.
OR
‘What is advertising? State with reason the mode of advertising you would adopt to sell ‘Fast moving consumer Goods’ in urban centers. [3]
Answer:
Franchising is as “an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures”. The person offering the franchise is known as the franchisor. The franchisee is the person who purchases the franchise and is given the opportunity to enter a new business with a better chance to succeed than if he or she were to start a new business from scratch. Foundation of this relationship is the Franchise Agreement.
OR
Advertising: Advertising is a paid form of communication designed to persuade potential customers to choose the product or service over that of a competitor.
Television: One of the most powerful and popular modes of advertisement is television. It is very useful for ‘FMCG.’ It has a large coverage and the reach is easy and speedy. The product attributes can be easily communicated even to the illiterate through visuals. But it is expensive and not within the reach of every entrepreneur, manufacturer and traders.
Question 26.
State any three assumptions made for the calculation of the break-even point for the sales mix?
OR
What do you mean by Gross Profit? [3]
Answer:
- The proportion of sales mix must be predetermined.
- The sales mix must not change within the relevant time period.
- All costs can be categorized as variable or fixed.
- Sales price per unit, variable cost per unit and total fixed cost are constant.
- All units produced are sold.
OR
Excess of Unit Price Over Unit Cost is known as the Unit Gross Profit or Unit Gross Margin. This represents the business’s profit from selling a product or providing service before deducting fixed expenses such as salaries, rent and other expenses. Gross Profit = Unit Price – Unit Cost.
Question 27.
Shilpi Ltd. started the manufacturing of herbal toothpaste. They researched that large number of established enterprises were also manufacturing the similar type of products. The company fixed the price of their toothpaste on ‘cost plus method’ of pricing. After some time the company realized that they were not getting good response regarding their toothpaste from the customers and the market share of their toothpaste was less than 0.5%. Since their product was new, they decided to change the pricing method so that initially they could get more customers. Identify and explain the new pricing method that was adopted by Shilpi Ltd. Also give any one its disadvantage. [3]
Answer:
Penetration pricing was the new pricing method adopted by Shilpi Ltd.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. The strategy works on the expectations that customers will switch to the new brand because of the lower price. 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.
Disadvantages or penetrating price method:
(1) It establishes long-term price expectations for the product and image preconceptions for the brand and company. This makes it difficult to eventually raise prices.
(2) Low-profit margins may not be sustainable long enough for the strategy to be effective.
Question 28.
Kapish an unemployed graduate got training for automobile repairing and allied services under PMKVY (Pradhan Mantri Kaushal Vikas Yojana) for skill development. He is planning to start a digital workshop for which he needs ₹25 lacs. Though through MUDRA (Micro Units Development and Refinance Agency) he is able to get a loan of ₹10 lacs but still he is falling short of *15 lacs. He wants to pitch in his idea to potential investors through his business plan. Explain any three formats in which he can present his business plan for his start-up. [3]
Answer:
It is common, especially for start-ups, to have the following formats as follows for the same business plan.
(1) Elevator pitch: It 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.
(2) A pitch deck with oral narrative: A hopeful, entertaining slide show and oral narrative that is meant to trigger discussion and interest
of potential investors in reading the written presentation, i.e. the executive summary and a few key graphs showing financial trends and key decision-making benchmarks.
(3) A written presentation for external stakeholders: A detailed, well-written, and pleasingly formatted plan targeted at external stakeholders.
(4) 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.
Ishita was manufacturing lunch boxes for school-going children. To increase sales and ultimately the revenue she decided to improve the quality of lunch boxes and added a warmer in the lunch boxes so that children could eat warm food in winter. She also gathered information about target markets and customers for the same. Identify and explain the ‘Idea fields’ discussed in the above para. [3]
Answer:
The idea fields discussed above are:
(1) Market-driven or demand-driven ideas: One important method for generating ideas is to carry out market research. Such a study yields valuable data about trends of supply, demand, consumer preferences, etc. Sometimes information related to different products is available with associations and organizations which carry out routine market surveys. Whatever the source of information about the market, it is a promising field for the generation of ideas.
(2) 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. When black and white computer screen came into use, immediately entrepreneurs started thinking of introducing colour monitors. There are new techniques and strategies being developed in every service like teaching, medicine, management, etc.
Section – D (25 Marks)
Question 30.
Mr. Raghav retired as CEO of a well-reputed IT company after having worked for 40 years in the USA. He returned to India with a desire to encourage entrepreneurial returns in IT sector. He was approached by Nitin, a budding entrepreneur in IT sector whose venture was in the start-up stage and was falling short of funds. Apart from investing funds, Mr. Raghav also provided proactive advice, guidance and industry connection and thus, simultaneously helps them in raising the high return on investments.
(i) Identify the source of raising finance used by Nitin.
(ii) Also explain any four features of source of raising finance identified in part (i). [5]
Answer:
(1) Angel Investor
(2) Features of angel investor:
Most angel investors are current or retired executives, business owners or high-net-worth individuals who have the knowledge, expertise, and funds that help start-ups match up to industry standards. As angel investors bear the extremely high risk and are usually subject to dilution from future investment rounds.
They expect a very high return on investment. Apart from investing funds, most angels provide proactive advice, guidance, industry connections and mentoring start-ups in its early days. Their objective is to create great companies by providing value creation, and simultaneously helping investors realize a high return on investments.
They have a sharp inclination to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs by making use of their vast experience.
Question 31.
“All ideas need not necessarily become sound business opportunities”. In reference to the statement mentioned, explain the steps in idea and opportunity assessment.
OR
“Some important factors are involved in the process of sensing entrepreneurial opportunity”. Comment on the statement. [5]
Answer:
(1) Product identification: An idea should lead the entrepreneur to a definite product/service that he can sell. So, the first step is to obtain a concept of the product or service suggested by one idea. We should also see whether this product is already available in the market or not. If it is, then we should identify the reason for introducing the same product or service in the market.
(2) 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.
(3) 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.
(4) Cost: What is the per unit cost of the product at a 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.
(5) 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.
(6) 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 machinery for such a technology? These are important issues that have to be resolved.
(7) 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. Once the entrepreneur has assessed the opportunities on this basis, he/she should go ahead and assess the market also.
OR
To sense an entrepreneurial opportunity, an entrepreneur employs his/her sharpened skills of observation, analysis, and synthesis to identify an opening. The most important factors involved in the process are:
(1) Ability to perceive and preserve basic ideas which could be used commercially: Spotting an idea often triggers the process of sensing an opportunity. The following are the various sources that lead to the emergence of basic ideas.
- Problems: When a problem exists, an idea leads to a solution to resolve that problem, it emerges as a business opportunity.
- Change: A change in social, legal, technological aspects, etc. leads to new opportunities to start a business.
- Inventions: New products or services leads to new business opportunities.
- Competition: Competition often results in the emergence of new and better ideas that result in new business opportunities.
- Innovation: Creating new things of value as well as new and creative processes that add value to existing products or services. For example, computers to tablets.
(2) Ability to harness different sources of information: Various sources like magazines, journals, books, seminars, trade shows, family members, customers, friends, etc. help in getting information that results in the evolution of basic ideas. Bring together various sources of information and knowledge, and analyze them to the best possible extent. The analysis helps in the identification of the right opportunity to start a new business.
(3) Vision and creativity: 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 a business opportunity helps them to move forward, overcoming all the obstacles. They constantly:
- overcome adversity
- exercise control over the business
- make a significant difference
Question 32.
School Gear Ltd. manufactures three products – Tiffin covers; Bottle covers; Pencil pouches. The variable expenses and sales prices of all these products are given below:
| Tiffin covers | Bottle covers | Pencil pouch | |
| Sales price per unit | ₹200 | ₹100 | ₹75 |
| Variable cost per unit | ₹100 | ₹60 | ₹25 |
The total fixed expenses of the company are *55,000 per month. For the coming month, it expects the sale of three products in the following proportions:
Tiffin covers: 20%
Bottle covers: 50%
Pencil pouch: 30%
Compute the break-even point of the company in units and rupees for the coming month.
Answer:
Contribution Margin per unit for each product:
| Product | Tiffin
covers |
Bottle
covers |
Pencil
pouch |
| Sales price @ unit | ₹200 | ₹100 | ₹75 |
| Variable cost @ unit | ₹100 | ₹60 | ₹25 |
| Contribution | ₹100 | ₹40 | ₹50 |
Thus contribution margin unit is calculated.
Now to calculate the weighted average contribution margin (CM) per unit = Tiffin Cover CM × sales mix percentage + Bottle Cover CM × Sales mix percentage + Pencil pouch CM × Sales mix percentage = 100 × 20% + 40 × 50% + 50 × 30% = 20 + 20 + 15 = ₹55
Thus weighted average CM per unit is ₹55.
Break-even point in Units of sales mix = Total fixed cost/Weighted average CM per unit
= ₹55,000/55 = 1000 units
Product break-even in units
(a) Tiffin cover – 1000 × 20 = 200 units
(b) Bottle cover – 1000 × 50 = 500 units
(c) Pencil cover – 1000 × 30 = 300 units
Product break-even in rupees
Product units at break-even point × price per unit
(a) Tiffin cover = 200 units × ₹200 = ₹40,000
(b) Bottle cover = 500 units × ₹100 = ₹50,000
(c) Pencil cover = 300 units × ₹75 = ₹22,500
Question 33.
Mergers and Acquisitions are inspired by a desire to diversify or achieve a higher growth rate. Explain any five other reasons for mergers and acquisitions.
OR
“The cost-plus method is simple, but it does not encourage the efficient use of resources.” In light of this statement, explain the three advantages and any two disadvantages of the cost-plus pricing method.
Answer:
(1) Synergy: Synergy refers to the difference between the value of the combined firm and the value of the sum of the participants. Synergy accrues in the form of revenue enhancement and cost savings. For example, if firm A and B merge and the value of the combined entity—V(AB)—is expected to be greater than (VA+VB), the sum of the independent values of A and B, the combined entity is said to be benefitting through synergy.
(2) Acquiring new technology: To remain competitive, companies need to constantly upgrade their technology and business applications. By buying another company with unique technology, the buying company can maintain or develop a competitive edge. A good example is a merger of a logistics company such as a land transport entity with a Nair-line cargo company. Another example is a merger between Blackberry and Treo which can incorporate cellphone capability and e-mail connectivity in one device; palm pilots and tablet laptops can provide benefits to both entities.
(3) Improved profitability: Companies explore the possibilities of a merger when they anticipate that it will improve their profitability.
(4) Acquiring a competency: Companies opt for mergers and acquisitions to acquire a competency or capability that they do not have and that the other firm has. For example, the ICICI ITC alliance made the retailer network and depositor base available to the merging entity. Similarly, IBM merged with Daksh for acquiring the competencies that the latter possessed.
(5) Entry into new markets: Mergers are often looked upon as a tool for hassle-free entry into new markets. Under normal conditions, a company can enter a new market, but may have to face stiff competition from the existing companies and may have to battle out for a share in the existing market. However, if the merger route is adopted, one can enter the market with greater case and avoid too much competition. For example, the merger of Orange, Hutch, and Vodafone took place to achieve this objective.
(6) Access to funds: Often companies find it difficult to access funds from the capital market. In such a case company may decide to merge with another company that is fund-rich. For example, TDPL (Tamil Nadu Dadha Pharmaceuticals) merged with Sun Pharma since TDPL did not have funds to launch new products.
(7) Tax benefits: Mergers are also adopted to reduce tax liabilities. By merging with a loss-making entity, a company with a high tax liability can set off the accumulated losses of the target against profits gaining tax benefits. For example, Ashok Leyland Information Technology(ALIT) was acquired by Hinduja Finance, a group company, so that it could set off the accumulated losses in ALITs books against its profits
OR
Advantages:
- Easy: This method of pricing is a very simple method. It can easily be used for determining the price.
- Flexible: Any changes in the cost of production in the margin of profit, change the price in the same direction. It automatically gets adjusted to the change.
- Visible Profit Margin: Profit margin is not to be calculated; it is already fixed. Thus, by multiplying the profit per unit with the volume of the product, the total profit can be determined.
- Increases Efficiency: Any upward rise in cost is easily visible. This provides an idea to the entrepreneur to adjust his production for keeping the cost as low as possible.
- Less Calculation: Comparatively less calculation is involved, which makes the implementation of this method simple.
- Easy implementation: This method can easily be implemented because of its simplicity to understand and because of easy calculations.
Disadvantages:
- Suitable only for a Single Product: A firm involved in the production of only one type of product finds it convenient. In case the firm decides about variation, then this method cannot be successfully used.
- Could Neglect the Competitive Price: In case the sum of cost price and profit is more than the competitive price, then the sale of the product will be low.
- Consumers’ preference: It is not considered while fixing the price by this method. This method does not provide much scope for selling a product discriminately to a different group of customers.
Question 34.
‘Anjali Exports’, a leading export house wants to diversify its business from cotton ladies dress, suits to bed sheets, handicraft items, etc., because of demand in foreign countries. For this she required capital of ‘ 1 crore. She decided to take this amount as a loan from Bank of Baroda for a period of10 years. In order to avoid any kind of risk, it conducted a market survey to have an edge over the competitors and to maximize its profits, capturing foreign markets.
(i) Identify the type of plan Anjali export has to made to analyse her business situation.
(ii) Also explain the first three steps in preparing such plan.
Answer:
(1) Anjali exports made a marketing plan for the diversification of her business.
(2) Procedure for preparing the marketing plan involves the following steps:
(1) Business Situation Analysis: This helps in finding out “where we have been”. Existing organizations review past performance and achievements of the enterprise but new ventures focus on:
- Personal profile of the entrepreneur.
- Emphasis on product development.
- What needs it satisfies.
- Any other enterprise/experience of the entrepreneur.
- Any other market segmentation if planned
(2) Identify the Target Market: Target market refers to the group of customers who will be our potential buyers. Divide the target customers into smaller groups as per consumers’ characteristics and buying situations and then develop a marketing plan integrating product, price, plan and promotion. For a new venture, it’s very essential to define clearly the specific group of potential customers whose needs the enterprise aims to fulfill.
(3) Conduct SWOT Analysis: The entrepreneur must consider the target market his enterprise:
- Strength
- Weakness
- Opportunities
- Threats
A marketing plan needs to consider the strengths and weaknesses of the new venture to ensure its success.
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