Std. XI Commerce Organization of Commerce & Management

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2 Std. XI Commerce Organization of Commerce & Management Edition: June 2014 Ms. Toral Juthani (M.Com, PGDFM) Published by Target PUBLICATIONS PVT. LTD. Shiv Mandir Sabhagriha, Mhatre Nagar, Near LIC Colony, Mithagar Road, Mulund (E), Mumbai Off.Tel: mail@targetpublications.org Website: Price : ` 145/- Printed at: Repro India Ltd. Mumbai Target Publications PVT. LTD. All rights reserved No part of this book may be reproduced or transmitted in any form or by any means, C.D. ROM/Audio Video Cassettes or electronic, mechanical including photocopying; recording or by any information storage and retrieval system without permission in writing from the Publisher.

3 ` Written according to the New Text book ( ) published by the Maharashtra State Board of Secondary and Higher Secondary Education, Pune. Std. XI Commerce Organization of Commerce & Management Salient Features : Exhaustive coverage of syllabus in Question Answer Format. Covers answers to all Textual Questions. Relevant Marking Scheme for Each Question. Includes Additional Important Questions for better preparation. Quick Review at the end of each chapter to facilitate quick revision. Simple and Lucid language. Self evaluative in nature. TEID : 738

4 ` Preface "Std. XI Commerce: Organization of Commerce and Management" is written with a revolutionary fresh approach towards content, laying a platform for an in-depth understanding of the subject. This book has been written according to the revised syllabus and guidelines as per the state board and covers answers to all the textual questions. In addition to this, we have included extra questions in each lesson that not only aim at covering the entire topic but also make students ready to face the competition. The sub-topic wise classified question and answer format of this book helps students in easy comprehension. The questions are provided with relevant marking schemes so as to highlight the importance of each question. Furthermore, we have provided model answers to each question in the form of pointers which makes it easy for students to memorize and reproduce the answers in their examinations. Every chapter ends with a Quick Review to facilitate quick revision of the lesson learnt. We are sure this study material will turn out to be a powerful resource for students and facilitate them in understanding the concepts of this subject in the most lucid way. The journey to create a complete book is strewn with triumphs, failures and near misses. If you think we've nearly missed something or want to applaud us for our triumphs, we'd love to hear from you. Please write to us on: mail@targetpublications.org Yours faithfully Publisher Best of luck to all the aspirants! No. Topic Name Page No. 1 Nature and scope of Business 1 2 Small Business 28 3 Private, Public and Global Enterprises 63 4 Internal Trade 92 5 International Business Business Environment Marketing Nature and Significance of Management 220

5 Chapter 01: Nature and Scope of Business 01 NATURE AND SCOPE OF BUSINESS Contents: 1.1 Introduction 1.2 Economic Activities 1.3. Objectives of Business 1.4 Role of Profit in Business 1.5 Classification of business activities 1.6 Business Risks 1.7 Summary 1.8 Differences and Comparative study chart 1.9 Exercises 1.1 Introduction Q.1. What do you mean by Human Activities? Explain in brief. [5] Ans: Every human being performs many activities in his daily life. He always keeps himself busy in some or other kind of activities to satisfy his needs and wants. The work which is done by human beings to satisfy his wants is known as activity. All human activities may be broadly divided into two categories: i. Economic Activities, and ii. Non-Economic Activities. i. Economic Activities: Economic activities are activities undertaken to earn one s living. A person gets money in return for conducting economic activities. The main objective of economic activities is production of wealth. Economic activities are related to the production, exchange, distribution and consumption of goods and services. Economic Activities can be further classified into three types: a. Business b. Profession c. Employment (Service) Examples of economic activities are: A teacher teaching at school, a worker at office, a doctor treating a patient etc. ii. Non Economic Activities: A person also engages in a number of activities for mental satisfaction and does many things to show love and affection for others. These activities are known as Non-Economic activities. These activities are undertaken not for money or any material reward or gain but for one s happiness, pleasure or satisfaction which cannot be measured in terms of money. Q.2. State with reasons whether the following statements are True or False: Economic Activities are done for mental satisfaction OR Non Economic Activities are done for monetary rewards. [5] Ans: This statement is FALSE Reasons: i. Economic activities are undertaken to earn one s living while non-economic activities are done for mental satisfaction. ii. Reward for economic activity is money or money s worth. iii. Examples of economic activities are: a teacher teaching at school, a worker at office, a doctor treating a patient etc. iv. Non-economic activities are undertaken not for money or any material reward or gain but for one s happiness, pleasure or satisfaction which cannot be measured in terms of money. v. Examples of non economic activities are: giving donations, reading a book, listening to music, giving food to poor people etc. 1.2 Economic Activities Q.3. Define and explain the concept of Business. [10] Ans: Meaning of Business: i. Business means to be busy. ii. The main aim of conducting business is to earn profit. 1

6 2 iii. iv. It is related with continuous and regular production and distribution of goods and services for satisfying human wants and earning profit. Production means changing the form of resources and adding value to them in order to satisfy human needs and wants. v. It is the act of creating goods or services which have value and can be used for consumption. vi. vii. Goods can be either agricultural goods or manufactured goods. Goods which are made in factories with the use of machines or man power are known as manufactured goods. For e.g.: Growing mangoes on a piece of land is an example of agricultural goods. Converting the mangoes into pulp / juices and selling them in the market is an example of manufactured goods. viii. Distribution on the other hand is the process of making a goods, products or services available for use or consumption by a consumer. ix. This process includes actual buying and selling as well as transport, advertising, warehousing, and other aids to trade that help the produced or manufactured goods to reach the consumers. Definition of Business: Stephenson defines business as, "The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants". Prof. Haney defines business as, "Business activities are all those human activities which are directed towards production and processing of wealth". *Q.4. Define Business. Explain its Features. [10] Ans: For definition of business: Refer Q.3. Definition of Business. Features of Business (Traditional Business): The features of business are as discussed below: i. Involves Production and Distribution: Every business deals with production or creation of goods and services and distribution of goods and services. Every activity or transaction required to be performed to complete the process of Std. XI(Commerce): Organization of Commerce & Management making goods or services available to the consumers is called a business activity. The objective of business is to provide goods and services to society for the purpose of earning profit. ii. Deals in goods and services: Every business transaction deals in either goods or services. Business implies exchange of goods and services for a price. A business transaction cannot take place without the involvement of goods and services. Goods may either be capital like raw material, tools and machinery or consumer goods like clothes, shoes, toothpaste etc. Services are intangible in nature. They include transport, banking, insurance etc. iii. Involves Exchange: Business implies exchange of goods and services for a price. Business means exchange of goods or services for money or money s worth. When goods are exchanged for money s worth, it is called monetary exchange. For e.g.: Buying clothes for money. On the other hand, goods exchanged for goods is called Barter Exchange. For e.g.: Buying new clothes by giving old clothes. iv. Aims at Profit: The Primary aim of every business is to earn profit. Profit is the driving force of every business as it is a reward for the services of a businessman. Every transaction includes profit, though the amount of profit may vary. v. Continuity: Business involves regular and continuous production and distribution. In business, the exchange of goods and services is a regular activity. A businessman deals not in one or two but in a number of transactions. A single transaction of buying and selling cannot be termed s business even if it involves monetary exchange. For e.g.: If a person sells his old television for money, then it cannot be called as business. However, a dealer in electronic goods is called businessman.

7 vi. vii. Risk: Risk and uncertainty are two important features of business. The element of risk exists due to a variety of factors such as: a. change in the demand of goods b. risk of loss due to fire, earthquake, pilferage, theft, etc. c. competition, changes in government policies etc. A businessman tries to predict the future uncertainties and plans his business activities accordingly. Two parties: Business implies exchange of goods and services for a price. Every business transaction involves at least two parties i.e. the buyer and the seller. A business transaction is a result of an agreement; hence the presence of two parties is a must. Features of Modern Business: The above mentioned features of business were the features of Traditional business. However, Modern business operates in a very competitive world. In today s world of liberalization and globalization, business operates on a large scale. Therefore, along with the basic features, modern businesses have some additional features. These features are listed as below: viii. Adaptability: The ability of a business to change according to the changing situation is known as Adaptability. For a business to succeed, it requires the ability to adapt to changing situations. The business environment is full of surprises and unforeseen events. Factors like consumers taste and preference, government policies, technology, change very fast. A business has to change its policies as per the requirement of the changing environment. ix. Large Scale of Business: With transport and communication developing at a fast rate, businesses have crossed national boundaries and started operating in International markets. Thus, production and Chapter 01: Nature and Scope of Business distribution of goods and services takes place on a large scale. x. Many lines of Product: With the expansion of markets, the business world has become very competitive. In order to survive, many companies produce and distribute many products at the same time. This will ensure that even if one product is not profitable, the company will earn profit by selling other products. xi. Role of Government: Government plays a regulatory role in the business environment. With businesses operating on a large scale, large amount of capital is invested. The welfare of the consumers, investors, creditors, employees depends upon how the business conducts its operations. Therefore, the government regulates the working of the business through various Acts at national and international markets to restrict unfair and unethical xii. trade practices Information: Information plays a very important role in today s business world. A business unit frames it plans and policies depending upon the information on market conditions, consumers taste and preferences, government policies, etc. gathered by it through various sources of information such as market surveys, internet, newspaper and journals. Information helps the business unit to take correct and timely decisions. xiii. Science and Technology: Modern businesses use scientific methods and modern technology in operating the business. Scientific methods are used for making financial statements, budgets, recruitment of employees and modern technology in producing and manufacturing goods. Q.5. State the features of business. [5] Ans: Refer Q.4. Features of Business (Traditional Business), any 5 points. Q.6. Discuss the features of Modern Business? [5] Ans: Refer Q.4. Features of Modern Business, any 5 points. 3

8 Q.7. What is the meaning of Profession? Explain the features of Profession. [10] Ans: Meaning of Profession: i. Profession is the utilisation of the special knowledge and skills of an individual for providing services in order to earn a living. ii. A person has to attain certain knowledge, formal education and undergo training in order to become a professional. 4 iii. iv. Profession is an intellectual activity. For e.g.: teachers, lawyers, doctors, engineers and accountants are known as Professionals. v. Every profession is regulated by a professional body. vi. For e.g.: the profession of Chartered Accountants is regulated by the Institute of Chartered Accountants of India. Features of Profession: i. Qualification: A person has to acquire certain qualification to offer professional services. Every profession has its own definite body of knowledge and prescribed qualifications. The knowledge required for practicing a profession has to be acquired through systematic and formal training. A person cannot practice a profession, unless he has the prescribed qualification, education and skills. ii. iii. Motive: Profession is an Economic activity. Every economic activity is undertaken for earning money. However, profession should also have the motive to provide service to the clients. Service motive is equally important for every profession. A professional renders services of special nature to solve the problem of his clients. He should be loyal to his profession and work for the well being of his clients. For e.g.: A doctor treating the illness of a patient should aim at improving the health of the patient rather than just focussing on money. Monetary Returns: A professional renders services and charges Fees. The income received / earned by providing service is called Fees. Income of profession is Std. XI(Commerce): Organization of Commerce & Management iv. uncertain. It depends upon the expertise, quality of service and experience of the professional. The incomes of selfemployed professionals are uncertain. For e.g.: A counsellor having his own clinic, is self-employed, whose income will be uncertain whereas, a counsellor working in a school is considered as an employee whose income is certain. Capital: The capital required by a self-employed professional is low as compared to a businessman. If a professional is working under someone else, he usually does not require any capital v. Requirement of registration: Every professional after successful completion of specified education and training has to be registered with his respective council and get a certificate of practice For e.g.: The bar council of India for Lawyers, Council of Architecture India for Architects etc. Generally, all professions have a distinct national level council that regulates the code of conduct of professionals. The professionals have to strictly adhere to the code of conduct prescribed by the respective council. It protects the interest of both the professional as well as the client. vi. vii. Non transferability: Unlike a business, profession cannot be transferred to other person at the will of professional. To practice a profession one requires to have prescribed qualification, education and skill. Hence, its not transferable. However, it can be transferred to a person who is qualified in the same profession. For e.g.: A lawyer cannot transfer his office or his practice to his son who has not completed education in law, however it can be transferred to another lawyer. Nature of work: A professional renders expert services based on his formal education, training and skills to his clients in exchange of fees. For e.g.: A Doctor treats the illness of a patient and accepts money.

9 Q.8. *Write a short note on the Features of Profession. OR What are the Features of a Profession? [5] Ans: Refer Q.7. Features of Profession, any 5 points. Q.9. Give the meaning and discuss the features of Employment. [10] Ans: Meaning of Employment: i. Employment is when a person works for others to complete a job, task or assignment and gets wages / salary in return. ii. For e.g.: Factory workers, office assistants and managers are said to be in employment. iii. The person who assigns the task is known as an Employer and the one who is expected to perform the assigned task iv. is known as an Employee. Employment may be full-time, parttime, permanent or temporary. Features of Employment: i. Qualification: Qualification required for an employment may or may not be specific. Some jobs require specific qualifications whereas some may not require specific qualifications. The qualification required to perform a job depends upon the nature of the job. As the nature of job changes, the qualification also changes. Qualification required for the job, should be possessed by the employee. The criteria of qualification can be used for employing skilled as well as unskilled employees. For e.g.: A driver should know how to drive a car. ii. iii. Motive: The Motive of any employment is to earn money in order to satisfy needs and wants Monetary Returns: An employee gets returns in the form of Wages or Salary for the work completed by him. The returns of employees are certain as they are paid on the basis of pre-determined terms and agreement. Wages are paid daily or weekly while Salary is paid monthly. An employee also gets incentives and rewards in the form of travelling Chapter 01: Nature and Scope of Business allowances, rent allowance, bonus, commission, etc. iv. Capital: No capital is required for an employee. An employer provides the employee with all the material, infrastructure, tools and equipment required to complete the given job or task. v. Code of Conduct: An employee has to abide by the rules and regulations as specified by the employer. These rules are agreed to by the employee at the time of accepting the employment. vi. Non Transferability: Every employment is an individual and independent contract which cannot be transferred from one person to another. For e.g.: If a manager retires, he cannot transfer the job to his son / daughter. vii. Nature of Work: The nature of work for every job is influenced by the nature of the job of the employer. An employer assigns a task and the employee is expected to complete the task assigned to him. Q.10. *Write a short note on the Features of Employment. OR Explain the Features of a Employment. [5] Ans: Refer Q.9. Features of Employment, any 5 points. *Q11.Give comparative analysis of business, profession and employment. [10] Ans: No. Business Profession Employment Meaning i. It is an economic activity which involves production and distribution ii. It is an economic activity where expert services are provided. of goods and services Qualifications Fixed A definite qualification qualification is not has to be required. attained. It is an economic activity where one person works under another person. Nature of work decides the required qualification. 5

10 iii. A businessman receives profit as monetary returns. 6 Monetary Returns A professional receives fees for the services provided by him. Capital iv. Money is to Only self be invested depending employed professional on the scale s need to of business. make an investment. Decision making v. A Businessma n is free to take decisions for his business. vi. Risk is involved in every business. vii. It can be started as soon as all legal formalities are completed. A Professional can take decisions for his profession however, they have to be with the framework of the code of conduct laid by the governing body. Risk Selfemployed professional s face limited risk. Commencement It can be started only after receiving the certificate of practice. An employee receives wages or salary. No money is required to be invested. Employee does not have to take any decisions. He is not involved in any major or final decisions. There is no risk till the employer and the employee adhere to the contract. It starts as soon as the contract is signed by both the parties and the employee completes the joining formalities. Std. XI(Commerce): Organization of Commerce & Management Transfer of Ownership viii. It can be Ownership It cannot be transferred can be transferred as from one transferred every job person to to someone offered is an another who is individual person after equally and completion qualified independent of legal and contract. formalities. competent to provide the services. Tenure ix. No fixed No fixed Tenure is tenure is tenure is mentioned in applicable. applicable. the contract or appointment letter. Code of Conduct x. Businessma n is not require to follow any code of conduct. xi. Builders, Shopkeepers, Supermarkets, Shopping malls etc. A professional is require to follow the code of conduct defined by the governing body and he should be very particular in following it. Examples Doctors, Architects, Engineers, Lawyers, Teachers etc. An employee has to follow the code of conduct mentioned at the time of contract till he is under an employer. Receptionist, Clerk, Assistants etc. Q.12. Distinguish between the following: [5 marks each] *i. Business and Profession Ans: Refer Q.11. Comparison between Business and Profession. *ii. Employment and Profession Ans: Refer Q.11. Comparison between Profession and Employment.

11 iii. Business and Employment Ans: Refer Q.11. Comparison between Business and Employment. Q.13. State with reasons whether the following statements are True or False: [5 marks each] *i. Risk is inevitable in business activities. Ans: This statement is TRUE Reasons: a. Risk and uncertainty are two important features of business. b. The element of risk exists due to a variety of factors such as: 1. change in the demand of goods 2. risk of loss due to fire, earthquake, pilferage, theft, etc. 3. competition, changes in government policies etc. c. A businessman tries to predict the future uncertainties and plans his business activities accordingly. d. However, the element of risk always remains associated with a business. ii. There is no registration required for practicing a profession. Ans: This statement is FALSE a. Every professional after successful completion of specified education and training has to be registered with his respective council and get a certificate of practice. b. For e.g.: The bar council of India for Lawyers, Council of Architecture India for Architects etc. c. Generally, all professions have a distinct national level council that regulates the code of conduct of professionals. d. The professionals have to strictly adhere to the code of conduct prescribed by the respective council. e. It protects the interest of both the professional as well as the client. Chapter 01: Nature and Scope of Business iii. An employee can transfer his job to his son / daughter upon retirement. Ans: This statement is FALSE a. Every employment is an individual and independent contract which cannot be transferred from one person to another. b. For e.g.: If a manager retires, he cannot transfer the job to his son / daughter. c. A business can be transferred to any other person. d. A profession can be transferred to another person who is equally qualified and competent. e. However, an employee cannot transfer his job to any other person. 1.3 Objectives of Business Q.14.*Describe the various objectives of a business unit. OR Discuss the objectives of Business. [10] Ans: Business is related with continuous and regular production and distribution of goods and services for satisfying human wants and earning profit. Objectives of Business: Business objectives can also be termed as goals determined by the business to be achieved through its daily transactions and dealings. Profit maximization is the basic aim of any business however, in today s competitive world, as the organization operates in a society and obtains its resources from the society, it has various other responsibilties towards the different elements of the society such as consumers, government, employees etc. The statement by Henry Ford suggests as follows: business is not mere money chasing but it also should aim at serving the community. (taken from Business Organization and Management P.C. Tulsian and Vishal Pandey, page no. 1.9). Objectives of business can be classified into two types: Economic Objectives and Social Objectives. 7

12 Economic Objectives of Business: Business is an economic activity. Therefore, its primary objectives are economic in nature. Without economic objectives, an organization cannot be termed as Business Organization. Economic objectives of business are: i. Earning Profit: Profit is essential for the survival of every business unit. Just as a person cannot live without food, a business organization cannot survive without profit. Profit is also necessary for the expansion and growth of business. Earning legal profit is not objectionable. Thus, a business unit produces goods and services that are required by the people and at the same time, allow it to earn profit. Profit serves as the measurement tool of the stability, efficiency and progress of a business organization. ii. Search of New Customers: A customer is the most important factor for any business. The survival and existence of a business depends completely on the number of customers it has created. A businessman can earn profits only when there are enough customers to purchase the goods and services. Without customer, a business cannot survive hence a business must provide quality goods and services at reasonable prices and at the right time. If the competition levels are high, a business has to work harder to create and maintain its customers. Creation and satisfaction of customers is an important economic objective of business as it enable the business to survive for a longer period of time and face the competition successfully. Business creates customers through marketing functions like advertising and salesmanship. iii. Innovation: Innovation means introduction of new ideas or methods. It is a positive change and development that leads to the improvement of the product or process of production. A business faces various changes such as changes in fashion, technology, consumers taste and 8 Std. XI(Commerce): Organization of Commerce & Management iv. preferences etc. In order to cope with the changes, maintain the existing customers and to create new customers, a business should spend money on Research and Development (R&D). It should conduct market surveys, use new technology and provide new and upgraded products in the market. It can also approach customers in different and new ways. Thus, innovation can be achieved by introducing new products or by tapping different channels of distribution or by offering value added services etc. No business organization can flourish in a competitive world without innovation. Best Possible use of Resources: Generally, all the resources available are scarce and many of them have alternate uses. A business should make the best possible use of the available resources in the business and minimize the wastage. Reduction of wastage also reduces the cost of production and increases the profits. Additionally, reduction of wastage is beneficial from the environmental point of view. Resources include human resources, raw materials, financial resource, etc. Thus, optimum (maximum) use of resources helps in increasing the efficiency, productivity and profitability of the business organization. Social Objectives of Business: Business is a part of the society. Every business should fulfill its social responsibilities. It cannot survive and develop without the support of society as it is dependent on the society for its resources. Therefore, Business must fulfill social responsibilities in order to get social acceptance. The social objectives of a business are: i. Supplying Quality Products: Business operates to satisfy the wants of customers. Customers are a part of the society. Business is expected to supply quality goods and services to the society. Quality refers to a combination of purity, safety, durability, utility, etc. of a product at reasonable price.

13 Customers should receive value for money. They should feel the price paid to be worth for the goods / services utilized. A satisfied customer recommends the product to his family and friends. This in turn results in increase in number of customers and eventually an increase in the profits. ii. Avoiding Unfair Trade Practices: A business should avoid malpractices like boarding, black marketing and misleading advertising, wrong measurement etc. It should follow fair trade practices. Unfair trade practices may lead to quick profits but in the long run, it affects the image of the company and the company loses its market share to its competitors. iii. Employment Generation: Business is a socio-economic institution. It is the responsibility of a business to provide employment opportunities to the skilled and unskilled members of the society. Business should also consider and attempt to provide employment to the poor and physically challenged people. Achievement of this objective will result in a good public image for the business. iv. Welfare of Employees: Skilled and unskilled labour / employees are a resource that a business obtains from the society. Theerefore, employee welfare is a way to serve the society. It can be achieved by providing the employees with fair wages, good working conditions, appreciations, increments, additional perks and benefits etc. v. Help to Solve Social Problems: Rapid industrialization leads to various problems like traffic jams, growth of slums, air pollution, water pollution and noise pollution. Business sector should understand these problems and try to reduce them. It can provide residential quarters to its employees. It should implement processes to reduce pollution and safeguard the environment. This ensures that the social and civic problems remain to its minimum. vi. Chapter 01: Nature and Scope of Business Contributing to the Welfare of the Society: Business should provide support to social, cultural, religious, research and developmental organizations. Business enterprises can build schools, colleges, libraries, dharamshalas, hospitals, sports bodies and research institutions. They can help non-government organizations (NGOs) like CRY, Help Age, and others which render services to weaker sections of society. Q.15. *Write a short note on the Social Objectives of Business. OR State the Social Objectives of Business. [5] Ans: Refer Q.14., Social Objectives of Business. Q.16. *Write a short note on the Economic Objectives of Business. OR What are the Economic Objectives of a Business? [5] Ans: Refer Q.14., Economic Objectives of Business. Q.17. *Why is it necessary for a business organization to create customers? [5] Ans: Refer Q.14., Economic Objectives of Business, point no. ii. Search of New Customers. Q.18. State with reasons whether the following statements are True or False: [5 marks each] *i. Available resources should be used to its maximum Ans: This statement is TRUE Reasons: a. Generally, all the resources available are scarce and many of them have alternate uses. b. A business should make the best possible use of the available resources in the business and minimize the wastage. c. Reduction of wastage also reduces the cost of production and increases the profits. d. Additionally, reduction of wastage is beneficial from the environmental point of view. 9

14 10 e. Resources include human resources, raw materials, financial resource, etc. f. Thus, optimum (maximum) use of resources helps in increasing the efficiency, productivity and profitability of the business organization. ii. It is essential for a business organization to create customers. OR A business cannot exist without customers. Ans: This statement is TRUE Reasons: a. A customer is the most important factor for any business. b. The survival and existence of a business depends completely on the number of customers it has created. c. A businessman can earn profits only when there are enough customers to purchase the goods and services. d. If the competition levels are high, a business has to work harder to create and maintain its customers. e. Creation and satisfaction of customers is an important economic objective of business as it enable the business to survive for a longer period of time and face the competition successfully. f. Business creates customers through marketing functions like advertising and salesmanship. iii. Social objectives are equally important for a Business Organisation for survival. Ans: This statement is TRUE Reasons: a. Business is a part of the society. b. Every business should fulfill its social responsibilities. c. It cannot survive and develop without the support of society as it is dependent on the society for its resources. Std. XI(Commerce): Organization of Commerce & Management d. Therefore, Business must fulfill social responsibilities in order to get social acceptance. iv. A business needs to fulfill only economic objectives to be successful Ans: This statement is FALSE Reasons: Refer Q.18., iii. for reasons. 1.4 Role of Profit in Business Q.19. *Explain the importance of profit in Business. OR Discuss the Role of Profit in Business. [10] Ans: Every business operates in order to earn profit. The main goal of a business is making profit. A business may have other goals but if they do not make profit then they will have to stop the business. Although profit should not be the sole aim of business, the main purpose of business is to earn profits. Profit is the driving force of every business. It is a reward for taking risk and investing time, money and energy in the business. Role of Profit: The role of profit can be stated as follows: i. Survival of Business: Profit is necessary for the survival and growth of business enterprise. A new business may find it difficult to survive at the initial stages in the constantly changing markets, however, if the business makes even small profits, it can survive and aim for better profits in future. If the business does not make enough profit it will not survive in the competitive world. Profit also facilitates the growth, development and expansion of a business. It helps employee motivation, eases negotiations with banks, attracts investors, and gives customers a confidence in business. ii. Income to Satisfy Needs: Business is an economic activity. The very existence of a business is to earn profit. Profit is the income earned by the businessman. A businessman can satisfy the needs and wants of his family only if he earns profit.

15 iii. Reward for Risk Taking: Profit is a return on investment. A businessman invests his capital and also runs his business with an uncertainty of making profit and the risk of incurring losses. Thus, earning profit is a reward for risk taken in the business iv. Availability of Funds: When a Business earns profit regularly, it can save and create wealth. These savings can also be used to meet future contingencies. The business is subject to many risks and uncertainties such as changing customer preferences, increasing competition, changing government policies etc. In such cases, profit is used to meet those unfavorable business difficulties. A business with good savings and profits earns reputation in the society which further helps the business in raising loans from financial institutions and public easily. Thus, profits make the funds available from internal as well as external sources. v. Growth and Expansion: Every business aims at growth and expansion as mere survival is not the aim of any business. Growth and Expansion may be in the form of opening of new branches, having national / international presence, offering different types of goods and services etc. Preservation of profits is the internal source of funds which can be used for increasing the volume of business through expansion and diversification. The portion of profit is re-invested in the business for further development. Thus, profits lead to the growth, development and expansion of the business. vi. Increases Efficiency: Profits increase efficiency in the operations of a business. It facilitates timely payment of bills, dues, salaries, taxes etc. This ensures regular supply of material, electricity, man power etc. At the same time, it increases the motivation of the employer as well as the employee thereby improving their efficiency. Chapter 01: Nature and Scope of Business vii. Satisfaction of Interest Groups: A business organisation operates in a society. It depends upon employees, workers, creditors, financial institutions, investors, customers, etc. for its smooth functioning and survival. Profits allows a business to satisfy and fulfill the expectations of the such interest groups. With enough profits, it can pay good remuneration to employees, pay interest and good dividend to shareholders, supply quality goods at reasonable prices, pay taxes to the government and contribute to the welfare of the society. viii. Index of Performance: Profit is a benchmark that tests the efficiency and the performance of the business firm. It is an indicator which tells whether the performance of a business is good or bad. It states how well a business is performing, whether it is good or bad. The success of the business can be judged by the profit earned. High profits represent the efficiency of the management and low profits act as a warning for the management. ix. Research and Development: Regular flow of money facilitates the owners of business to invest some amount of the profit in research and development. It leads to innovation. Research and development facilitates positive change and development that leads to the improvement in the product or process of production. This not only helps the business but also contributes to the development of the nation. Q.20. State with reasons whether the following statements are True or False: [5 marks each] i. The aim of a business organization is merely to survive. Ans: This statement is FALSE Reasons: a. Every business aims at growth and expansion b. Growth and Expansion may be in the form of opening of new branches, having national / international presence, offering different types of goods and services etc. 11

16 12 c. Preservation of profits is the internal source of funds which are used for increasing the volume of business through expansion and diversification. d. The portion of profit is re-invested in the business for further development. e. Thus, mere survival is not the aim of any business. ii. Profits make the funds available from internal as well as external sources. Ans: This statement is TRUE Reasons: a. When a Business earns profit regularly, it can save and create wealth. b. These savings can also be used to meet future contingencies. c. The business is subject to many risks and uncertainties such as changing customer preferences, increasing competition, changing government policies etc. d. In such cases, profit is used to meet those unfavorable business difficulties. e. A business with good savings and profits earns reputation in the society which further helps the business in raising loans from financial institutions and public easily. f. Thus, profits make the funds available from internal as well as external sources. 1.5 Classification of Business Activities Q.21. Explain the classification of business activities. [5] Ans: i. Business activities are all those human activities which are directed towards production and processing of wealth. ii. Every transaction executed with the aim of earning profit is known as a business transaction. iii. Business activities can be classified on the basis of functions into two: a. Industry: Industry includes the business activities which are related production and Std. XI(Commerce): Organization of Commerce & Management manufacturing of goods and services. Industries can be further classified into three types: 1. Primary Industries 2. Secondary Industries and 3. Tertiary Industries b. Commerce: Commerce includes the business activities which are related distribution of goods and services produced by the Industry. Commerce can be further classified into Trade and Auxiliaries to Trade. Trade refers to the buying and selling of goods and services. It can be further classified into: 1. Home Trade / Internal Trade and 2. Foreign Trade / External Trade Auxiliaries to Trade are the various services and factors that are required to facilitate the Trade. They ensure smooth flow of goods and services from the seller to the buyer. Auxiliaries to Trade include: 1. Transport 2. Warehousing 3. Insurance 4. Banking 5. Advertising 6. Mercantile Agents Q.22. What do you mean by Industry? Discuss the different types of Industries. [10] Ans: Meaning of Industry: i. Industry primarily refers to all such business activities which involve producing and manufacturing of goods and services. ii. It creates form utility by processing raw materials or semi-finished goods into finished goods. This is done with the help of manpower, machineries and money. iii. The goods produced can be consumer goods which are directly used by ultimate consumers or they might be capital goods which are directly consumed by another industry for further production.

17 iv. Extracting raw materials from earth s surface, manufacturing goods and commodities, producing crops, fish, flowers, etc., constructing buildings, dams, roads etc. are all examples of industry. v. Industries also create intangible services. vi. Industrial activities may be undertaken at large scale or small scale. They may take place in factories, small workshops or even at home vii. Industry is the backbone of entire business structure as production takes place in industries. Without production, distribution is not possible. Types of Industries: Industries can be classified into three types: Primary Industry: These industries are directly dependent on nature. Generally, these products cannot be used as it is. To consume these products it has to be processed first and then made available in the market. The output of Primary Industries may also be used as a raw material for Secondary Industries. It is further divided into three sub types. They are as follows: i. Agriculture Industry: It refers to cultivation of land and farming. The output produced is usually first processed and then made available for consumption. ii. Extractive Industry: It extracts (removes) the substances from natural resources for consumption. For e.g. extracting minerals and oils, fishing etc. Some extracts from these industries can be used directly and some are sent to other industries for further iii. processing. Genetic Industry: These are the industries which are involved in reproduction and multiplication of plants and animals. For e.g. Poultry farming, Animal husbandry, Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Pisiculture (breeding fish) Secondary Industry: Secondary Industries are dependent on primary industries for their raw material. They convert the raw material provided into finished goods. Chapter 01: Nature and Scope of Business For e.g.: Fruits produced from primary industry are used in making jams and jellies, Cotton is used to produce textile, Timber to produce furniture. Secondary Industries are of two types : i. Manufacturing Industry: These are the industries which convert all raw materials into useful products with the help of manpower and machineries. The output of manufacturing industries can be directly consumed. It manufactures consumer goods as well as capital goods. For e.g.: Refine metals, Manufacturing furniture. ii. Construction Industry: It refers to those industries which are concerned with construction of bridges, dams etc. It is the only industry which creates immovable wealth. The output of this industry is sold at the same place where it is built. For e.g.: Residential flats, Offices, Shops etc. Tertiary Industry: These industries are engaged in providing various services to the primary and secondary industries. Tertiary Industries facilitates the functioning of primary industries and secondary industries by providing them with services like Banking, Transport, Insurance, Warehousing etc. This industry can only grow if primary and secondary industries flourish in the market. Q.23. *Write a short note on Primary Industry. OR Discuss the different types of primary industries. [5] Ans: Refer Q.22., Types of Industries Primary Industry. Q.24. *What are the types of secondary industry? OR Write a short note on Secondary Industry. [5] Ans: Refer Q.22., Types of Industries Secondary Industry. 13

18 Q.25. *What do you mean by Commerce? [5] Ans: Meaning of Commerce: i. Commerce is an integral part of business which deals with the distribution of goods and services produced by the Industry. ii. Role of commerce begins where the role 14 iii. of industry ends. All goods and services produced are to be made available to the consumers else the industrial activities of producing goods will be of no use. iv. Commerce involves activities like making people aware about the product details, storing the product at right places, packaging the product, transportation of the product, selling the product and so on. v. It acts as a link between producers and consumers of goods and services and facilitates the purchase and sale of goods and services. vi. In fact, Commerce performs all those functions that are essential for maintaining a smooth and continuous flow of goods and services to the customers. vii. Commerce is further divided into a. Trade and b. Auxiliaries to Trade. Q.26. What do you mean by trade? Discuss the classification of Trade. [10] Ans: Meaning of Trade: i. Trade is the commercial activity that deals with the buying and selling of goods and services. ii. Trading involves exchange of goods and services for money or money s worth. iii. Trading activities are performed in local as well as international markets. iv. The main aim of trading activities is to transfer the ownership and possession of goods and services from one person to another i.e. seller to buyer. Classification of Trade: Trade can be classified on the basis of area of operations, as under i. Home Trade/Internal Trade: Internal trade is also known as Home Trade. When trade takes place within the boundaries of a country it is called internal trade. It means the activities of Std. XI(Commerce): Organization of Commerce & Management ii. buying and selling take place within the country. Local currency is used for exchange of goods in Internal Trade. For e.g.: A trader can buy Kanjivaram Sarees from the manufacturers at Tamilnadu and sell it to the retailers in Mumbai. Based on the scale of operations, Internal trade is further divided into: a. Wholesale Trade: Wholesale trade is concerned with buying goods in large quantities from manufacturers or producers and selling them in smaller quantities to retailers for further trading. This type of trade is usually conducted on a large scale. Traders who engage in this type of trade are known as Wholesalers. A wholesaler links the manufacturer and the retailer. He operates as an intermediary between producers and retailers. b. Retail Trade: Retail Trade involves buying goods from wholesalers and selling them to the ultimate consumers for personal use. This type of trade is usually conducted on a small scale. The trader involved in this type of trade is known as a Retailer. The retailer is the last link in the chain of distribution. He establishes a link between wholesalers and consumers. A retailer buys goods from the wholesaler in large quantities and sells them to the consumers as per their requirement. Foreign Trade/External Trade: External Trade is also called as Foreign Trade or International Trade. It is the trade between two countries. When the exchange of goods and services takes place between a buyer and a seller who are from two different countries, it is known as External Trade. Buying and/or selling of goods/services is done across national boundaries. Foreign currency is used for exchange of goods in External Trade. Foreign trade is further classified into-

19 *Q.40.How do government policies affect business risk? [5] Ans: i. Every Business has to operate under the legal framework i.e. the policies framed by the government. ii. Businesses have to frame their plans and policies based on these government policies. iii. Thus, when a government revises old policies or introduces new policies, the organisation has to reframe its policies. iv. This difference in policy may result in losses for the business. v. For e.g.: Changes in the Import-Export policy of the Government. Q.41. State with reasons whether the following statements are True or False: [5 marks each] 22 *i. Changing fashions is one of the important cause of business risk. Ans: This statement is TRUE Reasons: a. A demand for a product depends upon the consumer s taste and preferences. b. Consumer tastes and preferences keep changing due to various reasons such as changing purchasing power, the influence of Television, Films, the desire of western culture etc.. c. Ultimately the demand for goods falls due to rapid change in fashion trends. d. Stock of finished goods remain unsold which ultimately results in heavy losses. e. Therefore, changing fashions is one of the important cause of business risk. ii. Business risk is not related to the competition level faced by a business. Ans: This statement is FALSE Reasons: a. With the expansion of markets, the business world has become very competitive. b. Markets conditions are constantly changing, especially due to globalization and liberalization. Std. XI(Commerce): Organization of Commerce & Management c. Competition is open in local as well as international markets. d. Thus, every business unit must follow their standards and act according to policies in order to survive in the market. e. Every organization should consider all the factors while framing and implementing its policies. f. Failing to do so could lead to a heavy losses and the organization may lose its market share to its competitors. g. Thus, competition level is also a major cause for the risks faced by business. Objective Type Questions I. Select the correct option from the options given below and rewrite the sentences: [1 mark each] 1. The work which is done by human beings to satisfy his wants is known as. (A) Business (B) Employment (C) Activity 2. Activities undertaken to derive mental satisfaction are known as activities. (A) Economic (B) Human (C) Non-Economic *3. A courier agent is. (A) professional person (B) businessman (C) employee *4. National level of code of conduct is prepared for. (A) professionals (B) businessman (C) employees 5. means changing the form of resources (A) production (B) distribution (C) business

20 6. The Primary aim of every business is to earn. (A) Income (B) profit (C) loss 7. There should be minimum parties to a transaction (A) one (B) two (C) three 8. is the driving force of every business (A) Income (B) Satisfaction (C) Profit 9. A business has to change its with the changing environment. (A) Policies (B) Employees (C) Goals 10. Government plays a role in Business environment. (A) Guiding (B) regulatory (C) vital 11. A person has to acquire certain to offer professional services. (A) expertise (B) learning (C) qualification 12. Profession is activity. (A) social (B) economic (C) socioeconomic 13. No capital is required for. (A) a businessman (B) an employee (C) a professional 14. A person who works for others, gets in return. (A) salary (B) income (C) profit 15. A business organization can create a good public image by. (A) employment generation (B) innovation (C) earning profit Chapter 01: Nature and Scope of Business 16. Contributing to the welfare of the society is a objective of business. (A) social (B) socio-economic (C) economic 17. Profit is the basic aim of any business. (A) Expansion (B) maximization (C) minimization 18. Innovations means introduction of idea or methods. (A) new (B) old (C) systematic 19. is necessary for the survival and growth of business enterprise. (A) Funds (B) Profit (C) Capital 20. is a return on investment. (A) Funds (B) Profit (C) Capital 21. Preservation of profit is the source of funds. (A) external (B) internal (C) own 22. is an indicator which tells whether the performance of a business is good or bad. (A) Asset (B) Profit (C) Liabilities *23. Raw material is converted into finished product by industry. (A) genetic (B) extractive (C) manufacturing *24. Actual buying and selling of goods is known as. (A) profession (B) trade (C) industry 23