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IGNOU Solved Question Papers: ECO - 03 (December' 2011) | IGNOU B.Com Solved Question Paper


IGNOU B.Com Solved Question Paper

Term-End Examination (December, 2011)



Time: 2 hours (Maximum Marks: 50)

(Weightage: 70%)

Note: Attempt both Section 'A' and Section 'B'.


1. Explain clearly the meaning of the term 'Management' and describe its main functions.     3+9

Ans: Management: Management is the coordination of all resources through the process of planning, organising, directing, staffing and controlling in order to attain stated objectives effectively and efficiently.  Effectively means doing the right task, completing activities and achieving goals and efficiently means to attain objectives with least amount of resources at a minimum cost. This process starts at the top and continues in more or less degree at every level of the organisation.

According to Harold Koontz, “Management is an art of getting things done through others and with formally organised groups."

According to F.W. Taylor, “Management is an art of knowing what do you want to do and then seeing that is is done in the best and cheapest way.”

According to Henry Fayol, “To manage is to forecast, to plan, to organize, to command to co-ordinate and control.

Functions/Elements of Management

According to Henry Fayol, in every organisation manager perform certain functions to achieve results. These functions are broadly classified under five categories:-

1.      Planning: Planning is a process of making decision about future. It provides direction to enterprise activities. Its work is to decide in advance what is to be done, when and where it is to be done, how it is to be done and by whom. The main functions of planning are Set up goals, Forecasting, Search for alternatives source of action and Budgeting.

2.      Organising: It is concerned with the arrangement of an organisation’s resources – people, material, technology and finances in order to achieve enterprise objective. The main functions of organising are Job design, Job specification and Authority and responsibility.

3.      Staffing: Staffing is the function of employing suitable personas for the enterprise. It may be defined as an activity where people are recruited, selected, trained, developed, motivated and compensated for manning various positions.

4.      Directing: According to Dale, direction is telling people what to do and seeing that they do it to the best of their ability. Directing is a function of guiding and supervising the activities of sub ordinates. The four main elements of directing are:

5.      Leadership: It is a process of influencing the action of a person or a group to attain desired objectives. The success of an organisation depends upon the quality of leadership shown by its managers.

6.      Motivation: It is the process of stimulating people to take desired courses of action. It is to inspire, encourage and impel people to take required action.

7.      Communication: It is a way of reaching other with ideas, facts, and thoughts. Effective communication is important in organisation because managers Can achieve very little without it.

8.      Controlling: It is the management function concerned with monitoring employee’s activities, keeping the organisation on track towards its goals, and making corrections as required. It include four things:

9.      setting standard of performance;

10.  measuring actual performance;

11.  comparing actual performance against the standard ;

12.  Taking corrective actions to ensure goal accomplishment.

2. (a) Discuss the importance of Planning in an Organisation.  6+6

Ans: Importance and Advantages of Planning

Planning is of vital importance in the managerial process. No enterprise can achieve its objectives without systematic planning. “Planning is the heart of management” The following points highlight the importance of planning function of management:

1.      Planning provides directions: By stating i n advance how work is to be done, planning provide direction for action. If goals are well defined, employees are aware of what the organisation has to do and what they must do to achieve those goals. Departments and individuals in the organisation are able to work in coordination. Planning keeps the organisation on the right path.  If there was no planning, employees would be working in different directions and the organisation would not be able to achieve its goals efficiently.

2.      Planning reduces the risks of uncertainty: Business enterprises operate in an uncertain environment and face several types of risks. Planning enables these enterprises to predict future events and prepare to face the unexpected events. With the help of planning, managers can identify potential dangers and take steps to overcome them. Thus, planning helps risk and uncertainty.

3.      Planning facilitates decision-making: Decision-making involves searching for various alternative courses of action, evaluating them and selecting the best course of action. Under planning, targets are laid down. With the help of these targets, managers can better evaluate alternative courses of action and select the best alternative. Plans lay down in advance what is to be done and how it is to be done. Therefore, decisions can be taken with greater confidence.

4.      Planning reduces overlapping and wasteful activities: Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions. There is no confusion and misunderstanding. Useless and redundant activities are minimized or eliminated. It is easier to detect inefficiencies and take corrective measures to deal with them.

5.      Planning promotes innovative ideas: Planning is thinking in advance and, therefore, there is scope of finding better ideas and better methods and procedures to reach the objectives/goals of the enterprise. This forces managers to think differently about the future of the organisations from the present. Thus, planning makes the managers innovative and creative.

6.      Planning establishes standards for controlling: Planning provides the goals or standards against which the actual performance can be measured and evaluated. A comparison of actual performance with the standards helps to identify the deviations and to take corrective action. Planning makes control meaningful and effective. ‘Control is blind without planning.” Thus, planning provides the basis of control.

(b) State the limitations of Planning.

Ans: Limitations of Planning

Planning is essential for a business organisation. It is difficult to manage operations without formal planning. It is important for the organisation to move towards achieving goals. But often things to not always go according to plan. Unforeseen events and changes, rise in costs and prices, environmental changes, government interventions, legal regulations, all affect our business plans. Plans then need to be modified. Therefore, planning might fail due to the following limitations:

1.      Planning does not work in dynamic environment: The business environment is dynamic, nothing is constant. The environment consists of a number of dimensions— economic, political, technological, legal and social dimensions. The organisation has to constantly adapt itself to the changes in business environment. However, it is not always possible to accurately assess future trends in the environment.

2.      Planning is a time consuming process: Planning is a time consuming process. It requires collection of information, its analysis and interpretation. These activities may take considerable time. Sometimes plans to be drawn up take so much of time that there is not much time left for implementation of plans.

3.      Planning involves huge costs: Planning is an expensive process in terms of money. When plans are drawn up, huge costs are involved in the formulation of plans. If the costs are not justified by the benefits derived from the plan, it may have adverse effect on the enterprise. There are a number of incidental costs as well, like expenses on Board’s meetings, discussions with professional experts and preliminary investigations to find out the Viability of the plan.

4.      Planning creates rigidity: Planning leads to rigid mode of functioning for managers. This has adverse effect on the initiative to be taken by them.

5.      Planning does not guarantee success: The success of an enterprise is possible only when plans are properly drawn up implemental. Managers have a tendency to rely on previously tried and tested successful plans. But it is not always true that a plan which has worked before, will work effectively again.

6.      Planning reduces creativity: Planning is an activity which is done by top management. Usually the rest of the organisation just implements these plans. As a consequence, middle management and other decision makers are neither allowed to deviate from plans nor are they permitted to act on their own. They only carry out orders.

3. Distinguish between formal and informal Organisations. Explain the functions of the informal organisation.  6 + 6

Ans: Difference between formal and Informal organisation:





It is official, so it has prescribed structure of roles and relationships.  It is planned and deliberately created by management

It is in unofficial or natural having no specific structure.  It arises spontaneously without official sanction by management


It is based on delegation of authority & may grow to very big size.  It is mechanistic and brings order in the organisations.

It arises through social interactions between employees.  It usually remains small is size.  It is humanistic and gives satisfaction to employees.


It is deliberately created impersonal with emphasis on authority, functions, status differentials and down ward communications

It is personal with emphasis on people and their intricate relationships, informal rankings and multidimensional communications. 


It is hierarchical and pyramid shaped.

It has no definite shape, and no division of work.  It is structural less and ill defined.  It is psychosocial system.


Its tasks, goals and values are economic oriented towards efficiency, productivity profitability and growth.

Its tasks, goals and values are socio- psychological centering on individual and group satisfaction affiliation co-friendship esteem etc.

6. Charts and Manuals

It can be shown in the form of charts and manuals of the organisation.

It finds no place on organisation charts and manuals.

Functions of Informal Organizations:

a)      Informal group gives social satisfaction to the employees.

b)      It promotes sense of belongingness.

c)      It provides safety valve for emotional problems of the employees

d)      It provides social control.

e)      It helps developing communication channels in the organization

f)       It provides help on the job to the employees during illness, accidents etc.

g)      It serves as a check on authority of a manager.

h)      It  provides fertile ground for future leaders

i)        it supports in achieving organizational goals

j)        It reduces supervision.

k)      It may help manager to overcome their natural limitations of ability.

4. What do you mean by motivation? Do you feel that motivation helps in inspiring and encouraging employees to work willingly? Give your arguments.    3+9

Ans: Motivation: The word motivation is derived from ‘motive', which means an active form of a desire, craving or need that must be satisfied. Motivation is the key to organizational effectiveness. The manager in general has to get the work done through others. These 'others' are human resources who need to be motivated to attain organizational objectives.

According to George R. Terry, "Motivation is the desire within an individual that stimulates him or her to action."

According to Berelson and Steiner “A motive is an inner state that energizes activates, or moves and directs or channels behavior goals".

According to Lills "It is the stimulation of any emotion or desire operating upon one's will and promoting or driving it to action".

According to Encyclopedia of Management  "Motivation refers to the degree of readiness of an organism to pursue some designated goals and implies the determination of the nature and locus of force inducing a degree of readiness."

Role of Motivation in inspiring and encouraging people to work willingly

Motivation is a psychological phenomenon which generates within an individual. A person feels the lack of certain needs, to satisfy which he feels working more. The need satisfying ego motivates a person to do better than he normally does. The motivation process is influenced by personality traits, learning abilities, perception and competence of an individual.  A highly motivated employee works more efficiently and his level of production tends to be higher than others. It originates from the-needs and wants of an individual. It is a tension of lacking something in his mind, which forces him to work more efficiently. The motivation procedure contributes to and boosts up the morale of the employees. A high degree of motivation may lead to high morale. Some of the effect of motivation on employees are given below:

a)      High Performance: Motivated employee’s writ put maximum efforts for achieving organizational goals. The untapped reservoirs of physical and mental abilities are taped to the maximum. Better performance will also result in higher productivity. The cost of production can also be brought down if productivity is raised.

b)      Low employee Turnover and Absenteeism: When the employees are not satisfied with their job then they will leave it whenever they get an alternative offer. The dissatisfaction among employees also increases absenteeism. The employment training of new employees costs dearly to the organization.

c)      Better Organizational Images: Those enterprises which offer better monetary and non-monetary facilities to their employees have a better image among them. Such concerns are successful in attracting better qualified and experienced persons. Since there is a better man-power to development programme, the employees will like to join such organizations. Motivational efforts will simplify personnel functions also.

d)      Better Industrial Relations: A good motivational system will create job satisfaction among employees. The employment will offer them better service conditions and various other incentives. There will be an atmosphere of confidence among employers and employees. There will be no reason for conflict and cordial relations among both sides will create a healthy atmosphere. So motivation among employees will lead to better industrial relations.

e)      Acceptability to Change: The changing social an industrial situations will require changes and improvements in the working of enterprises. There will be a need to introduce new and better methods of work from time to time. Generally employees resist changes for fear of an adverse effect on their employment.

5. Define communication. What are the steps involved in the process of communication? Explain.  4+8

Ans: Communication: The term communication is derived from a Latin word “communis‟ which means common. This means establishing a common ground. Now whatever is common is shared by all. But what is that which is shared by all in communication? It is fact, ideas, understanding, opinions, information etc.

In the words of Newman, Summer & Warren, “communication is an exchange of facts, ideas, and opinions by two or more persons.”

According to Keith Davis, Communication is the process of passing information and understanding from one person to another.”

Communication should not be interpreted as merely sending or receiving messages. It involves a systematic and continuous process of telling, listening and understanding. It is a two way process and is complete only when there is some response from the receiver of information.

Steps in Process of Communication

The process of communication is the inter relationship between several independent components. It consists of a chain of related actions and reaction which together result in exchange of information. In order to understand the process of communication, it is necessary to describe each of these components. A model of communication process is as follows:

1.      Sender: The sender is the first component of the process of c communication. The sender may be a speaker, a writer or any other person. He is the one who has a message and wants it to share it for some purpose.

2.      Ideation: Ideation is the preliminary step in communication where sender creates an idea to communicate. This idea is the content and basis of the message to be communicated. Several ideas may generate in the sender’s mind. The sender must identify, analyze and arrange the ideas sequentially before transmitting them to the receiver.

3.      Message: Message is the heart of communication. It is what the sender wants to convey to the receiver. It may be verbal i.e. written or spoken or non verbal i.e. body language, space language, etc.

4.      Encoding: To encode is to put an idea into words. In this step the communicator organizes his ideas into a series of symbols or words which will be communicated to the intended receiver. Thus the ideas are converted into words or symbols. The words and the symbols should be selected carefully, it should be understandable and most of all it should be suitable for transmission and reception.

5.      Transmission: Next in the process of communication is transmission of the message as encoded messages are transmitted through various media and channels of communication connects the sender and the receiver. The channel and media should be selected keeping in mind the requirement of the receiver, the communication to be effective and efficient the channel should be appropriate.

6.      Receiver: Receiver is the person or group for whom the message is meant. He may be a listener, a reader or a viewer. Any neglect on the part of the receiver may make the communication ineffective. Receiver is thus the ultimate destination of the message. It the message does not reach the receiver the communication is said to be incomplete.

7.      Decoding: Decoding means translation of symbols encoded by the sender into ideas for understanding. Understanding the message by receiver is the key to the decoding process. The message should be accurately reproduced in the receiver’s mind. If the receiver is unable to understand the message correctly the communication is ineffective.

8.      Behaviour of the receiver: It refers to the response by the receiver of the communication received from the sender. He may like to ignore the message or to store the information received or to perform the task assigned by the sender. Thus communication is complete as soon as the receiver responses.

9.      Feedback: Feedback indicates the result of communication. It is the key element in the communication and is the only way of judging the effectiveness of communication. It enables the sender to know whether his message has been properly interpreted or not. Systematic use of feedback helps to improve future message. Feedback, like the message could be oral, written or non verbal. It has to be collected from the receiver.

6. Discuss the nature, benefits and limitations of Break-even Analysis as one of the modern techniques of control. 3+4+5

Ans: Break even analysis: The study of cost-volume-profit analysis is often referred to as “Break even analysis “and the two terms are used interchangeably by many. This is why break even analysis is a known form of cost-volume-profit analysis. The term break even analysis is used in two sense – narrow sense and broad sense. In its broad sense, break even analysis refers to the study of relationship between cost, volume and profit. In its narrow sense, it refers to a technique of determining that level of operations where total revenue equal total expenses i.e., breakeven point.

The main Features (Characteristics) of Break even analysis are as follows:

1. Cost Classification: This technique makes a sharp distinction between variable costs and fixed costs. It is the variable cost on the basis of which production and sales policies are designed by a firm.

2. Managerial Decisions: It is a technique of analysis and presentation of costs which help management in taking many managerial decisions such as make or buy decision, selling price decisions etc.

3. Inventory Valuation: Under break even analysis technique, inventory for profit measurement is valued at marginal cost only.

4. Price Determination: Prices are determined on the basis of marginal cost by adding contribution which is the excess of selling price over variable costs of sales.

5. Contribution: Break even analysis makes use of Contribution for taking various decisions. Contribution is the difference between sales and marginal cost. It forms the basis for judging the profitability of different products or departments.

Advantages of Break even analysis

1.      Helpful in Cost control: It divides total cost into fixed and variable cost. By concentrating all efforts on the variable costs, total cost can be controlled.

2.      Profit Planning: It helps in short-term profit planning by making a study of relationship between cost, volume and Profits, both in terms of quantity and graphs.

3.      Evaluation of Performance: The different products and divisions have different profit earning potentialities. Break even analysis is very useful for evaluating the performance of each sector.

4.      Helpful in Decision Making: It is a technique of analysis and presentation of costs which help management in taking many managerial decisions such as make or buy decision, selling price decisions, Key or limiting factor, Selection of suitable Product mix etc.

5.      Production Planning: It helps the management in Production planning. The effect of alternative production policy can be readily available and decision can be taken that would yield the maximum return to Business.

Disadvantages of Break even analysis

1.      It is based on an unrealistic assumption that all costs can be segregated into fixed and variable costs. In the long term sales price, fixed cost and variable cost per unit may vary.

2.      All costs are not divisible into fixed and variable. There are certain costs which are semi-variable in nature. The separation of costs into fixed and variable is difficult and sometimes gives misleading results.

3.      Under break even analysis technique, stocks and work in progress are understated. The exclusion of fixed costs from Stock Valuation affects profit, and true and fair view of financial affairs of an organization.

4.      Marginal cost data becomes unrealistic in case of highly fluctuating levels of production, e.g., in case of seasonal factories.

5.      It can correctly assess the profitability on a short-term basis only, but for long term it is not effective.


7. Write explanatory note on any two of the following:   7+7

(a) Barriers to effective delegation

Ans: Barriers in delegation of authority

1.      Reluctance to delegate: In many cases managers will not be interested to delegate to authority. They will not be willing to give authority to subordinates. They will not make any plan to delegate authority.

2.      Fear of subordinates: Managers in many cases fear from subordinates because they think that when there is delegated authority their performance will be superior to the performance of manager and subordinate may pose challenge to the manager.

3.      Lack of trust: Managers may lack confident or trust on subordinates. They do not think or believe that after delegating authority, subordinates will do better or their performance will improve.

4.      Incompetence of subordinates: Subordinates must be competent enough for effective delegation of authority. Subordinate must be willing and competent to accept delegated authority. In many organizations due to the incompetency of subordinates delegation of authority is affected.

5.      Lack of control: When employees are delegated authority, they will be free to work. They will work autonomously; managers cannot exercise effective control over them. Delegation is affected.

(b) Behavioral theory of leadership

Ans: The Behavioural Theory: The short comings of the trait theory led to a significant change in the emphasis of leadership approach. This shift in emphasis began to focus an attention on the actual behaviour and actions of leaders as against personal qualities or traits of leaders. According to his approach, leadership involves an interpersonal relationship between a leader and subordinates in which the behaviour of the leader towards the subordinates constitutes the most critical element. The good behaviour of the leader raises the morale, builds up confidence and spirit among the team members and the lack of good behaviour will discard him as a leader.

But the behavioural theories also suffer from certain limitations, e.g., what constitutes the most effective style of leadership behaviour? Moreover, a particular behaviour or action of a leader may be effective at one point of time while the same may be ineffective at some other point of time and in some other circumstances.

(c) Budgetary control

Ans: Concept of Budgetary Control: Budgetary control is the process of determining various budgeted figures for the enterprise for the future period and them comparing the budgeted figures with the actual performance for calculating variances, if any.

According to Brown and Howard, “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.”

Objectives of Budgetary Control: The main objectives of budgetary control are as follows:

a)      To ensure planning for future by setting up various budgets, the requirements and expected performance of the enterprise are anticipated.

b)      To co-ordinate the activities of different departments.

c)      To operate various cost centres and departments with efficiency and economy.

d)      Elimination of wastes and increase in profitability.

e)      To anticipate capital expenditure for future.

f)       To centralize the control system.

g)      Correction of deviations from the established standards.

h)      Fixation of responsibility of various individuals in the organization.

(d) Importance of directing function

Ans: Importance of Directing

a)      To Initiate Action: The employees in the organisation start working only when they get instructions and directions from their superiors. In the directing function the superiors direct the actions of employees toward the predetermined goals of the organisation.

b)      To Integrate Employees’ Efforts: In the organisation numbers of employees are working at different levels and in different job positions. The employees may differ in their levels of authority and the type of job assigned.

c)      Means of Motivation: Directing function does not mean giving orders only but through directions and instructions the superiors try to motivate the employees to perform to their best ability.

d)      Balance in the Organisation: The directing function tries to create balance in the organisation. Generally when the employees are working at different levels they develop different attitudes and the balance between their attitudes is made by directing function.

e)      To Facilitate Change: Generally the employees hesitate in accepting the changes but through directing function the changes can be implemented more easily as while giving directing the superiors guide the subordinates that the changes are better for them also.


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