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IGNOU Solved Question Papers: ECO - 03 (June' 2012) | IGNOU B.Com Solved Question Paper


IGNOU B.Com Solved Question Paper

Term-End Examination (June, 2012)



Time: 2 hours (Maximum Marks: 50)

Weightage: 70%

Note: Attempt both sections A and B.


Attempt any three of the following questions.

1. What do you understand by 'Functional Organisation? Explain its merits and demerits. 3+9

Ans: Meaning of Functional Organisation:

Functional organisation is a type of organisation in which the work of the whole enterprise is divided into a number of specialized functions like production, purchasing, marketing, office management, personnel relations, etc. and each of these specialized functions is entrusted to a functional expert or specialist. In this type of organisation, the line executive receives instructions not only from his line boss but also from one or more specialists.

Merits of Functional Organisation:

Functional organisation has certain advantages. They are:

1.      This system ensures maximum use of the principle of specialisation at every work point and helps the enterprise to enjoy the benefits of specialisation of functions.

2.      As the workers have to perform only a limited number of functions under this type of organisation, this system contributes to higher efficiency of the workers.

3.      As there is no scope for one-man control in this form of organisation, this system ensures co-operation and team-work among the workers.

4.      Under this system, the line officers are freed from the worries of technical problems faced by the workers, as instruction regarding the technical problems flow to the workers directly from the specialists.

5.      This system is flexible, in the sense that any change in the organisation can be introduced without disturbing the whole organisation.

6.      This system is quite suitable for training young specialists.

7.      This system ensures the separation of mental functions (i.e., planning) from manual functions (i.e., functions at the workshop), and thereby, simplifies managerial control.

Limitations of Functional organisation:

Functional organisation suffers from some drawbacks. They are:

1.      Under this type of organisation,' there is many supervisory staff of equal rank. This may lead to conflicts among them.

2.      As the workers have to work under many bosses under this system, it is difficult to maintain discipline among the workers.

3.      As there are several functional experts in the organisation under this system, there may be the difficult or co-ordination.

4.      The speed of action may be hampered under this system, as the control is divided among several specialists.

5.      As there are several functional experts under this system, the top management may find it difficult to fix responsibility, when there is unsatisfactory progress.

6.      As a large number of specialists, there experts are required to be appointed under this type organisation, this system is very expensive.

7.      It is very difficult to put this system into operation.

8.      This system makes relationship more complex.

2. What are the barriers to effective delegation? Suggest various means of effective delegation. 5+7

Ans: Barriers in delegation of authority

a)      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.

b)      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.

c)      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.

d)      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.

e)      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.

Principles of Effective Delegation of Authority or how barriers can be removed or Elements of delegation:

a)      Knowledge of Objectives: Before delegating authority, the subordinates should be made to understand their duties and responsibilities. In addition, knowledge of objectives and policies of the enterprise should be provided to them.

b)      Parity of Authority and Responsibility: This principle of delegation suggests that when authority is delegated, it should be commensurate with the responsibility of the subordinate.

c)      Unity of Command: This principle of delegation suggests that everyone should have only one boss. A subordinate should get orders and instructions from one superior and should be made accountable to one superior only.

d)      The Scalar Principle: The scalar principle of delegation maintains that there should be clear and direct lines of authority in the Organisation, running from the top to the bottom. The subordinate should know who delegates authority to him and to whom he should contact for matters beyond his authority.

e)      Clarity of Delegation: The principle of clarity of delegation suggests that while delegating authority to subordinates, they should be made to understand the limits of authority so that they know the area of their operation and the extent of freedom of action available to them. Such clarity guides subordinates while performing their jobs.

3. What do you mean by leadership style? Explain various leadership styles with suitable examples. 2+10

Ans: Ans: Leadership Style: A leadership style is a leader's style of providing direction, implementing plans, and motivating people. There are many different leadership styles that can be exhibited by leaders in the political, business or other fields.

Leadership Styles or Types of Leaders

1.      Autocratic or Authoritarian Style leader: An autocratic also known as authoritarian style of leadership implies wielding absolute power. Under this style, the leader expects complete obedience from his subordinates and all decision-making power is centralized in the leader. No suggestions or initiative from subordinates is entertained. The leader forces the subordinates to obey him without questioning. An autocratic leader is, in fact, no leader. He is merely the formal head of the organisation and is generally disliked by the subordinates who feel comfortable to depend completely on the leader.


a)      Reduced stress due to increased control

b)      A more productive group ‘while the leader is watching’

c)      Improved logistics of operations

d)      Faster decision making


a)      Short-termistic approach to management.

b)      Manager perceived as having poor leadership skills

c)      Increased workload for the manager

d)      People dislike being ordered around

e)      Teams become dependent upon their leader

2.      Laissez-faire or Free-rein Style Leader: Under this type of leadership, maximum freedom is allowed to subordinates. They are given free hand in deciding their own policies and methods and to make independent decisions. The leader provides help only when required by his subordinates otherwise he does not interfere in their work. The style of leadership creates self-confidence in the workers and provides them an opportunity to develop their talents. But it may not work under all situations with all the workers, may bring problems of indiscipline. Such leadership can be employed with success where workers are competent, sincere and self-disciplined.


a)      No work for the leader

b)      Frustration may force others into leadership roles

c)      Allows the visionary worker the opportunity to do what they want, free from interference

d)      Empowers the group


a)         It makes employees feel insecure at the unavailability of a manager.

b)         The manager cannot provide regular feedback to let employees know how well they are doing.

c)         Managers are unable to thank employees for their good work.

d)         The manager doesn’t understand his or her responsibilities and is hoping the employees can cover for him or her.

3.      Democratic or Participative Style leader: The democratic or participative style of leadership implies compromise between the two extremes of autocratic and laissez-fair style of leadership. Under this style, the supervisor acts according to the mutual consent and the decisions reached after consulting the subordinates. Subordinates are encouraged to make suggestions and take initiative. It provides necessary motivation to the workers by ensuring their participation and acceptance of work methods. Mutual trust and confidence is also created resulting in job satisfaction and improved morale of workers. It reduces the number of complaints, employee's grievances, industrial unrest and strikes. But this style of leadership may sometimes cause delay in decisions and lead to indiscipline in workers.


a)      Positive work environment

b)      Successful initiatives

c)      Creative thinking

d)      Reduction of friction and office politics

e)      Reduced employee turnover


a)      Takes long time to take decisions

b)      Danger of pseudo participation

c)      Like the other styles, the democratic style is not always appropriate. It is most successful

d)      When used with highly skilled or experienced employees or when implementing operational changes or resolving individual or group problems.

4.      Paternalistic Style leader: This style of leadership is based upon sentiments and emotions of people. A paternalistic leader is like a father to these subordinates. He looks after the subordinates like a father looks after his family. He helps guides and protects all of his subordinates but under him no one grows. The subordinates become dependent upon the leader.

4. Discuss the meaning and importance of Departmentation. What are the factors to be considered while selecting a suitable basis of Departmentation? 3+4+5

Ans: Departmentation: The process of dividing activities into units and subunits is referred to as departmentation. The term departmentation is used in a generic sense n is not only confined to the creation of such units as are called departments, but it includes divisions, sections and jobs also.

Dividing up work calls or identification of total activities and classification of such activities into units and subunits. There are three bases for primary grouping of activities at the second level of the organisation just below the top level. Units at the second level are commonly called departments when business functions are adopted as the pattern of grouping activities. Such units go by the name of divisions when either product manufactured or territories are adopted as the means of classifying activities.

Choice of bases for departmentation Or DETERMINANTS OF DEPARTMENTATION

The selection of bases for departmentation involves a consideration of the relative advantages of each base for the organisation. Ideally speaking, a suitable basis of departmentation is one which facilitates the performance of organisational functions efficiently and effectively so that its objective is achieved.

1)      Specialization: While assigning activities into departments, care must be taken to ensure that the benefits of specialization are achieved.

2)      Control: One of the primary aims of departmentation is to facilitate control. Departments should be so created as to fix clear responsibilities so as to enable effective control.

3)      Coordination: Coordination involves that all the related activities are performed in a way that their performance is synchronized so that each activity contributes to others.

4)      Economy: A balance should be maintained between the cost of creating a department and its contribution. The existence of a department is desirable only when it contributes more than its cost.

5)      Focus on Result: Those activities which contribute to the achievement to these results should be given proper attention.

6)      Human Considerations: Departments should be created on the basis of availability of personnel, their aspirations and value systems, informal work groups and attitudes of people towards various forms of organisation structure.

7)      Emphasis on Local Conditions: while assigning activities proper emphasis should be given to local conditions at the places concerned, viz. the personality of the individuals who may be given the responsibilities, the nature of informal relationship among the people, the attitude of the people, etc.

8)      Economy: Another important factor to be considered while creating separate departments is the expense involved and economy in its operations.

9)      Key Activities: there are certain activities which are very crucial. Such activities should be placed in separate divisions.

5. Do you think that external sources of recruitment are better than internal sources of recruitment? Give your view with an argument.          12

Ans: The sources of recruitment may be classified into internal sources and External Sources.

Internal Sources: Internal sources are considered to be more important and reliable sources.  It includes the employees of the organization, the employed who had left the organization but desire to join the organization again, or those to whom the company may like to rehire as they had left voluntarily or those on production lay off.

External Sources: These are sources, which lie outside the organization.  These sources include new entry in the labour force especially young energetic inexperienced potential employees like college students. This method of recruitment is considered to be more suitable because of the following reasons:

a)      Recruitment of internals leads to inbreeding and discourages new blood with new ideas from entering into the organization.

b)      It is possible that internal sources ultimately dry up and hence it may be difficult to find suitable persons from within the organization.

c)      In case of certain jobs such as advertising, style, designing, basic research etc recruitment from within is not desirable.

d)      In many organizations promotion is based on seniority and there is a danger that right type of man may not be chosen.

e)      Likes and dislikes of management may affect the process of selection of persons.

f)       External sources provide huge scope for selecting required type of personnel for the organization, having necessary skill, abilities, education, training upto required standard.

g)      Since few people are to be selected from very large market, it becomes possible to select best persons irrespective of caste, sex, religion etc.

h)      In the long run to external sources are more economical because potential employees may not need extra training for their jobs.

6. (a) Distinguish between 'formal' and 'informal' communication.  6+6

Ans: Difference between Formal and Informal Communication Channel


Formal Communication

Informal Communication

01. Rules

In Formal communication, Organizational rules are strictly followed.

It does not generally follow the rules of organization

02. Recognition

Such communication requires official’s recognition.

In informal communication, It does not require any official’s recognition.

03. Flexibility

It is inflexible in nature as it cannot be changed when desired.

Being flexible, It can be changed easily.

04. Secrecy

Such Communication is not free and open to all. So, Secrecy is maintained here.

It is free and open to all, So it is very difficult to maintain secrecy here. i.e. Grapevine communication which spread informally. 

05. Time & Cost

It follows various rules of organization. So, It requires much time and cost.

Informal communication does not bother for the formalities of organization and therefore it requires less time and cost.

06. Record Keeping

This type of communication involves written procedure, So record can be kept in formal communication.

Permanent record is impossible here because almost nothing is written here.

(b) What are the common barriers to effective communication in an organisation?

Ans: Types of Barriers in communication: The barriers to communication in an organization may be broadly categorized into following groups:

1. Physical barriers (RECEIVER’S ORIENTED)

2. Socio- psychological or personal barriers (RECEIVER’S ORIENTED)

3. Organizational barriers (SENDER’S ORIENTED)

4. Semantic barriers (SENDER’S ORIENTED)

5. Mechanical barriers (SENDER’S ORIENTED)

However, such a classification does not suggest that these are mutually exclusive. Rather, it is helpful in understanding the nature of communication barriers.

1. Physical Barriers: There are the environmental factors that also obstruct or reduces the sending and receiving of communication, such as physical distance distracting noises and other interferences difficulty arises in communicating a message, when the physical distance increases:-

Noise: Noise is first and foremost barrier to effective communication. Noise may be caused by machines, equipment, communication device, disturbances in the time of transmission etc. noise also encompasses many other factors such as the sender may use ambiguous or confusing signal. The receiver may misinterpret the message. Thus communication is likely to be spoilt due to noise.

Time and distance: Time and distance also acts as a barrier in smooth flow of communication. Distance between the sender and receiver acts as a hurdle. Although this barrier can be overcome by technology but still in case of breakdown, this exists. Different timing of shifts at workplace also acts as barriers in imparting on vital information.

2. Socio-psychological or personal Barriers: There are certain socio psychological factors which restrict the free flow of communication. They are the attitude and opinions, status consciousness, ones relations with fellow workers, seniors, and junior’s etc. family background. These restrict participative communication:

I. Motives, attitudes, judgments, emotions, and social values of people from the part of the personal barriers. Psychological distance is also developed with this.

II. Individual Differences: There are differences in the motives, attitudes and sentiments of the people. So this causes problems in encoding and decoding other’s sentiments, attitudes and motives.

III. Differences in interest: The interest of people also differs. A problem may be important for one person but may not carry weight for another. The ideas, question, attitudes, feelings etc of other party may represent an obstacle to one’s own personal goal.

IV. Division of People: Communication is ideas and viewpoint also gets affected by the division of people into classes, castes and communities.

V. Difference of viewpoints: Communication suffers when there are differences in view point of the different people.

VI. Lack of planning: Good communication never happens but has to be planned. When people take it lightly and communicate without planning it turns into miscommunication or mal communication.

VII. Cultural barriers: Due to difference in the cultural background the same word, phrases, symbols, actions etc. may mean different to different group of people. Mis understanding may take place due to this.

3. Organizational Barriers: Organisational barriers arise due to defects in the organization structure and the communication system of an organization:

I. Hierarchical distance: Downward communication promotes hierarchical distance. The chances of information being filtered are more at this structure, because there are several layers. Information received from the top may not reach at bottom in the same shape. The information gets coloured which brings hierarchical distance.

II. Diversion: Diversion of information is also one of the causes which brings barrier to communication process. For example sometimes a manager diverts the information meant for one person or group to another.

III. Colouring: Information are also coloured by the manager intentionally with a view to twist the situation in their favour. For example, an office may quote his subordinate wrongly, to spoil his career or his chance of promotion or his image in the eyes of the boss.

IV. Status barriers: Status is a barrier of communication in a formal organization. Organizational interaction and communication are influenced by the status and the expectations.

V. Goal conflicts: Goal conflict acts as communication reducers. Different goal lead to bifurcation of interest. Due to this communication suffers.

4. Semantic Barriers: Semantic means the relationships of signs of their reference. Semantic barrier arises from the disadvantages of the symbolic system. Symbols have got number of meaning and one has to choose any one of them according to the requirement of communication. Symbol or the language is the most important tool of communication which has to be used very carefully:-

I. Words with different meaning: Some words convey more than one meaning. When the receiver assigns a different meaning to a word than what the sender intended, there occurs miscommunication.

II. Denotation and connotation: Words have two types of meaning = Denotation and connotation. Denotation is the literal meaning of the words connotation are the suggestive meaning of the words. Connotation is the suggestive meanings of the words. Connotation may be positive or negative.

III. Offensive style of communication: Badly expressed messages lose their impact. Offensive style of communication leads to communication breakdown causing loss of time and money.

IV. Wrong assumptions: Communication should not be based on assumption as it may lead to wrong interpretation. All possible efforts should be made to clarify assumptions.

V. Selective perception: many a time the message is decoded by the receiver in a way which may be selective. In other words most of the receivers protect their own interest and expectations leading to a particular type of feedback which becomes a communication problem.

5. Mechanical Barriers: Mechanical barriers include inadequate arrangement for transmission of news, facts and figures. Example poor office layout and defective procedure and the use of wrong media led to poor communication.

I. Information overload: Excess of communication is called information overload. Brevity is the soul of communication. The receiver cannot comprehend and absorb beyond his mental capacity. His mind will remain closed for the excess part of the communication. Therefore one should be brief and to the point.

II. Loss of transmission: When messages are transmitted from person to person they are filtered. In other words they are diluted and distorted on the way. In oral communication about 30% of the information is lost in each transmission.


7. Write explanatory notes on any two of the following:

(a) Standard Costing

Ans: Standard Costing: Standard Costing is defined by I.C.M.A. Terminology as, “The preparation and use of standard costs, their comparison with actual costs and the analysis of variances to their causes and points of incidence”. Standard costing is a method of ascertaining the costs whereby statistics are prepared to show:

(a)   The standard cost

(b)   The actual cost

(c)    The difference between these costs, which is termed the variance” says Wheldon.

Thus the technique of standard cost study comprises of:

a)      Pre-determination of standard costs;

b)      Use of standard costs;

c)      Comparison of actual cost with the standard costs;

d)      Find out and analyse reasons for variances;

e)      Reporting to management for proper action to maximize efficiency.

(b) Span of Control

Ans: In the words of Spriegal, "Span of control means the number of people reporting directly to an authority. The principle of span of control implies that no single executive should have more people looking to him for guidance and leadership than he can reasonably be expected to serve. The span of supervision is also known as span of control, span of management, span of responsibility, span of authority and span of direction.

Factors influencing the span of Management

            There are number of factors that influence or determine the span of Management in a particular organisation, the most important of these are as follows:

1.      The capacity and ability of the executive: The characteristics and abilities such as leadership, administrative capabilities; ability to communicate, to judge, to listen, to guide and inspire, physical vigour, etc. differ from person to person. A person having better abilities can manage effectively a large number of subordinates as compared to the one who has lesser capabilities.

2.      Competence and training of subordinates: Subordinates who are skilled, efficient, knowledgeable, trained and competent require less supervision, and therefore, the supervisor may have a wider span in such cases as compared to inexperienced and untrained subordinates who requires greater supervision.

3.      Nature of Work: Nature and importance of work to be supervised is another factor that influences the span of supervision. The work involving routine, repetitive, unskilled and standardized operations will not call much attention and time on the part of the supervisor.

4.      Time available for supervision: The capacity of a person to supervise and control a large number of persons is also limited on account of time available at his disposal to supervise them. The span of control would be generally narrow at the higher level of management because top manager have to spend their major time on planning, organising, directing and controlling and the time available at their disposal for supervision will be less.

(c) Limitations of management principles.

Ans: Principles of Management are the statements of fundamental truth which provide guidelines which help management to take decisions and action. They are derived from observation and experimental studies. Some of the limitations of management principles are listed below:

a)      Universal Application is a myth: Though management principles are considered to be universally applicable, it is a well known fact that all the principles are not applicable in every situation. Universal applicability of management principles is a myth.

b)      Employees will suffer in long run: a Management principle promotes specialisation which can be a problem for employees in the long run because present business situation is diversified and expertise in various fields in now a must for every employee.

c)      Delay in decision making: Complete Centralisation of powers and decision making some times causes unnecessary delay in decision making.

d)      Misuse of authority: Complete decentralisation will result in misuse of authority.

(d) Importance of planning.

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:

a.      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.

b.      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.

c.       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.

d.      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.

e.      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.

f.        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.


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