Solved Business Organization Complete BCOM SEM I Question Bank

University of Lucknow 

BCOM SEM I

Business Organisation

Unit: I

Q1.What do You Understand By opitimum Size of Bussiness Unit.Explain the Factor Determine the Optimum Size of Bussiness Unit.

Ans: Factors Determining Size of the Firm

Every business is striving towards attaining the optimum size. Usually, any business starts as a small entity, and then during its operating period, it expands till it reaches the optimum size.

Capital Investment Factor

The capital employed by shareholders in the form of share capital, reserves, and surplus (net worth) determines the size of the business. It is mainly used to compare two firms or more that are producing similar or differentiated products.

Number of Employees

The number of employees employed by any business determines its size. This is done by comparing the wages paid to employees with other businesses.

This factor is used where firms produce similar goods. If you use it in comparing firms that are producing differentiated products, then you end up with false results.

Power Used

The amount of power used determines the size of the business. Business firms don’t rely on this factor as it is inaccurate because of the amount of power used by any business may be more or less.

Raw Materials Used

The annual consumption of raw materials of any firm determines its size. It used only on those firms that are producing similar products.

The volume of the output

This factor is used for those firms that are producing homogeneous goods.

The capacity of Plant

It is used by firms that produce similar products.

Total Assets

The total assets of any business determine its size. The value of all assets (current and fixed) is taken as a means of measure. It is used in both similar and differentiated firms.

Value of Output

This is another factor that determines the size of any firm; however, this method is only effective in cases where firms produce a variety of products and where price levels remain constant.

The Optimum Size of Business

From an economic point of view, every business organization should expand as long as its average per-unit cost is just equal to that of its marginal cost.

In simple words, when the factors of production-land, labor, capital, and organization can affect maximum returns at their minimum involvement, the economics consider that as the best, and the most desired size of business.

A firm with this-sat and volume of operation may ensure minimum unit cost, but a maximum return is known as the optimum firm.

“By the optimum firm,” says E.A.G. Robinson, “we must mean that firm which, in exiting conditions of techniques and organizing ability has the lowest average cost of production per unit, when all those costs which must be covered in the long run are included.”

Factors Affecting the Size of the Firm

The main factors that affect the size of the firm are as follows:

Nature of Industry

The nature of the industry has a direct influence on the size of the firm. Manufacturing industries are, by and large, bigger compared to trading and service firms.

Manufacturing industries heavy machinery, produce goods on a large scale, make higher capital investments, and therefore large.

Nature of Products

When the product is less standardized, the size of the firm is often small when the product is standardized, complex, and durable; the size of the firm is often big.

Capital employed

When the capital involved is large, and the firm can raise it, the size of the firm is large, when the capital involved in small, the size of such a unit will be small.

Size of the market

If the size of the market is large for the product, the firm will also be large and vice-versa.

Quality of management

The competence and integrity of management largely determine the size of a business unit. If the management is competent to manage the complex tasks of modern business, the firm can afford to be large.

Q2.What Do You Understand By Business Organization. Distinguish between industry trade & Commerce.

The term business organization describes how businesses are structured and how their structure helps them meet their goals. In general, businesses are designed to focus on either generating profit or improving society. When a business focuses on generating profits, it is known as a for-profit organization. When an organization focuses on improving the social good through the arts, education, health care, or some other area, it is known as a nonprofit (or not-for-profit) organization and is not typically referred to as a business.

There are different categories of business organizations that relate to how the business is established, owned, and operated. The basic categories of business organization are sole proprietorship, partnership, and corporation. Each type of business organization has benefits as well as disadvantages. For example, a sole proprietor of a small business is able to operate independently of much of the government regulation that affects larger businesses, but he or she is liable (responsible) for all financial risks of the business. Therefore, the owner of a small grocery store is able to keep all the profits for herself, but she is also liable for all of her business debts, even if she must repay a debt with her personal finances.

Trade

Trade is referred to as a basic economic activity that involves buying and selling different goods and services between two or more parties involved in the transaction. Trade that takes place between two parties is called bilateral trade, while the same occurring between more than two parties is called multilateral trade.

Commerce

Commerce is referred to as an economic activity that involves the exchange of goods and services or valuables between two entities. It involves purchasing goods and services by large organisations. Commerce mainly deals with transactions taking place between nations.

Trade	Commerce
Definition
Trade is referred to as a basic economic activity that involves buying and selling of different goods and services between two or more parties involved in the transaction.	Commerce involves all the activities that aid in promoting the exchange of goods and services from the manufacturer to the last customers. Primarily, the activities are banking, transportation, advertising, warehousing, insurance, etc.
Reach
Narrow	Wider reach
Purpose
Satisfying the social perspective of seller and buyer	To look for generation of revenue
Connects
Buyer and seller	Manufacturer and end user
Requirement of Capital
Trade requires more capital	Commerce has less capital requirement
Employment Opportunities
Less as compared to Commerce	More in comparison with trade

An industry is a group of companies that are related based on their primary business activities. In modern economies, there are dozens of industry classifications. Industry classifications are typically grouped into larger categories called sectors.

Individual companies are generally classified into an industry based on their largest sources of revenue. For example, while an automobile manufacturer might have a financing division that contributes 10% to the firm's overall revenues, the company would be classified in the automaker industry by most classification systems.

Similar companies are grouped together into industries, and there are a number of different industries, such as department stores and shoemakers.

Industry grouping is based on the primary product that a company makes are sells. Meanwhile, industries are grouped together into sectors.

The North American Industry Classification System is the standard classification system used by government agencies to organize companies into sectors or industries.

Q3.Explain the Concept E-business. Explain the Benifit And Limitation of E-business.

Ans: E-business refers to the buying and selling of goods and services through the internet along with conducting other important business functions over the internet. E-business is a broader term than e-commerce.

E-business includes the management functions of planning, organising, marketing and production conducted electronically. The other functions that are covered under e-business include inventory management, product development, human resource management and accounting and finance.

E-business scope can be explained with the following four directions.

1. B2B Commerce
2. B2C Commerce
3. C2C Commerce
4. Intra B-Commerce

B2B Commerce: In B2B Commerce, the two parties involved in business transactions are both business firms. For example in the manufacturing of automobiles, there is a requirement for a lot of components and these components can be provided by an organisation that is an ancillary of the automobile industry.

Both the businesses need to collaborate with each other in order to be successful.

Another example can be of the e-commerce company Flipkart which lets users choose and purchase products using the mobile app. They also formed another company called Ekart logistics to take care of the product delivery.

This can be seen as an arrangement between two companies to function together in a business.

B2C Commerce: B2C commerce implies that the interaction occurs between the business owner and customer. In this type of commerce, the goods and services provided by the business is directly consumed by the consumer.

One example of this type of commerce can be OTT media company Netflix that provides digital content for viewers with a paid subscription model. The consumers purchase subscriptions in order to view the digital content.

C2C Commerce: This type of business originates from the customers and the end point of the business is customers only. This type of business is suitable for dealing with products or goods where there is no market mechanism involved.

One such example can be eBay where users sell their items to be purchased by some other user. A similar model can be seen in India in the form of OLX where users can sell their used items by listing the product along with price.

Intra B-Commerce: This type of business occurs within the organisation, where the requirement for a product is met within the divisions of the organisation.

Limitation of E-Business

1. Security issues: There are a lot of people who scam through online business. Also, it is easier for hackers to gel your financial details. It has a few security and integrity issues. This also causes distrust among potential customers

2. Delivery time: The delivery of the products takes time. This lag time often discourages customers. However, e-businesses are trying to resolve such issues by promising very limited delivery times. For example, Amazon now assures one-day delivery

3. Lack of Personal Touch: One can touch or feel the product. So it is difficult for the consumers to check the quality of a product. In the traditional model, we have contact with the salesperson. This lends it a touch of humanity and credibility. It also builds trust with the customer. An e-Business model will always miss out on such attributes

Importance of E-Business

The development of time and technology introduced a lot many ways of improving your business.

One of them which highly got popular among sales and transactions is E-commerce.

Making the exact replica of the normal website used for searching and looking for any kind of information.

E-commerce websites allowed users to start shopping just like purchasing from a physical market.

E-commerce websites helped consumers choose and buy any product they want without moving from their place.

As of today it is the most required step for customers. Not only for selling and purchasing but the company website today represents the complete business of one’s company. It not only adds value to the products and services of your company but also enhances its true worth.

Technology has also greatly enhanced the world of accounting, which in turn, has revolutionized the ways companies can do business.

Q4.Explain the Social Responsibility of Business. & state the provision in this regards the progress made in India.

Ans:Social responsibility is a moral obligation on a company or an individual to take decisions or actions that is in favour and useful to society. Social responsibility in business is commonly known as Corporate Social Responsibility or CSR. For any company, this responsibility indicates that they acknowledge and appreciate the goals of the society, and therefore, would support them to achieve these goals.

Advantages of Social Responsibility

A company can boost its morale and enhance work culture when they can engage their employees with some social causes. There are many factors that can have a positive impact on the business while delivering social responsibilities. Such few factors are Justification for existence and growth

The long-term interest of the firm

Avoidance of government regulation

Maintenance of society

Availability of resources with business

Converting problems into opportunities

A better environment for doing business

Holding business responsible for social problems

Disadvantages of Social Responsibility

Like there are many advantages of social responsibility there are similarly many disadvantages for business. Few factors are mentioned below.

Violation of profit maximization objective

Burden on consumers

Lack of social skills

Lack of broad public support

India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

Amid the COVID-19 (coronavirus) outbreak, the Ministry of Corporate Affairs has notified that companies’ expenditure to fight the pandemic will be considered valid under CSR activities. Funds may be spent on various activities related to COVID-19 such as promotion of healthcare including preventive healthcare and sanitation, and disaster management.

Unit: II

Q1.Define Sole Proprietorship and its advantage & Disadvantage. 

Ans:A Sole proprietorship can be explained as a kind of business or an organization that is owned, controlled and operated by a single individual who is the sole beneficiary of all profits or loss, and responsible for all risks. It is a popular kind of business, especially suitable for small business at least for its initial years of operation. This type of businesses is usually a specialized service such as hair salons, beauty parlours, or small retail shops.

Definition of Sole Proprietorship:

• It is that type of business organization which is owned, managed and controlled by a single owner.
• The word “sole” means “only” and “proprietor” notes to “owner”.
• A sole proprietor is the beneficiary of all profits.
• All risks are to be borne by the sole proprietor.
• The sole proprietor has unconditional and full control over its business.
• Example: Beauty parlour, barbershop, general store and sweet shop run by a single owner.

Advantages of Sole Proprietorship:

Some of the popular advantages of a sole proprietorship are.

• Quick decision making– A sole proprietor has the freedom to make any decision. Therefore, the decision would be prompt as they don’t have to take the permission of others.
• Confidentiality of information- Being only the owner of the business, it allows him/her to keep all the business information to be private and confidential.
• Direct incentive- A sole proprietor directly has the right to have all the profit or benefits of a company.
• Sense of accomplishment- He/she can have the personal satisfaction associated with working without any guidance or alone.
• Ease of formation and closure- A single proprietor can enter the business with minimum legal formalities.

Limitations of a Sole Proprietorship:

Some of the primary limitations of a sole proprietorship are as follows:

(1) Limited Resources

• Resources of a sole proprietor are limited to his savings and borrowings from the relatives.
• Banks also hesitate or deny giving the long term loans or extend the limit of long term loans due to the weak financial position of the business.
• Lack of all these resources results in hindrance in the growth of the sole proprietorship business
• Above mentioned are the reason why the business generally remains small.

(2) Life of a Business Concern

• The owner and its business is the same entity and due to lack of successor or heir, the life of the business is limited.
• Due to death, insolvency, illness of a proprietor gives a detrimental impact on the business which results in closure of the business.

(3) Unlimited Liability

• The major demerit of a sole proprietorship is that the owner has unlimited liability.
• If the sole owner becomes fails to pay the debts, due to the failure of a business, the creditors would not only claim from business assets but also from his personal estate.
• Taking a large amount of loan is too risky and also put the burden on the sole owner of the business.
• Hence, this is the reason why sole traders do not intend to take the risk for the survival and growth of the business.

(4) Limited Managerial Ability

• The sole proprietor has to accept all the responsibilities to carry out its business.
• Sometimes the proprietor has to perform all the managerial functions like sales, purchase, marketing, selling, dealings with clients, etc.
• He may not be able to employ and retain aspiring employees.

Q2.Define Partnership. Also Differentiate between Partnership & Joint Stock Company. 

Ans: A partnership is a kind of business where a formal agreement between two or more people is made who agree to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates.

In India, all the aspects and functions of the partnership are administered under ‘The Indian Partnership Act 1932’. This specific law explains that partnership is an association between two or more individuals or parties who have accepted to share the profits generated from the business under the supervision of all the members or behalf of other members.

The joint stock company and the partnership firm can be distinguished on the following points:-

1) on the basis of formation

partnership: It is formed by an agreement that is in written.

Joint stock: It is formed under the company ordinance.

2) On the basis of No. of members

Partnership: the no. of members can be minimum 2 and maximum 20 members.

Joint stock: it can have any no. of members those are called shareholders.

3)On the basis of liability

Partnership: the liabality of member partners are unlimited( if not mentioned in agreement).

Joint stock: the liability of members is limited(upto the value of the shares).

4) on the basis of Financing

Partnership: Members contribute the funds.

Joint stock: can borrow from bank and can issue paid up shares to get capital.

5) on the basis of tax payment

Partnership: members of registered firms need to pay tax individually.

Joint stock: the company is subject to double taxation.

6) On the basis of control

Partnership: decisions are made with the consultation with all members.

Joint stock: the decisions are made by board of directors.

7) on the basis of dissolution

Partnership: can be dissolved with mutual consent of the partners.

Joint stock: can be dissolved by numerous ways

Q3.Explain the Following.

A)Limited Liability Partnership

B)One Person company

A)Limited Liability Partnership

The full form of LLP is the Limited Liability partnership. LLP is a combination of a traditional partnership, & a business is close to a traditional partnership and also some matches with business as some of its characteristics. For instance, it offers the flexibility of a conventional partnership firm and the advantage of a company’s limited liability at a low compliance cost. It means in an LLP, participants have the flexibility to coordinate their internal strategies on the performance of a mutually negotiated arrangement, such as a partnership firm, and even the partners have limited liability where the liability of every partner is restricted.

• Besides that, in an LLP, one party is not liable or charged for the neglect, wrongdoing or misconduct of another party.
• It’s a hybrid between a partnership & an organisation. In comparison, an LLP is required to have at least one “General Partner” with unlimited liability in individual nations.
• In businesses where liability is limitless, the partners’ private properties can be sold off in order to pay for the damages or to cover the dues.
• The Government has adopted Act LLP2008, which entered into force on 1 April 2009, to resolve this restriction.
• LLP is also a legal entity since it has to be licenced with the ROC (Registrars of Companies) and is regulated by the 2008 LLP Act.

Advantages of LLP

• It is distinct from its partners, or partners are distinct from the company. No one can contact property rights if a business causes massive casualties. Only the sum they invested in companies will be affected.
• The liabilities are restricted and are still in proportion to the equity of the capital of the partners. Besides, all partners must be Limited Liability Partnership agents and not other partners.
• It allows the versatility to make the necessary changes. It gives members the freedom to coordinate their internal operations, as is the case in a collaboration company, based on a shared agreement.
• Easy to set up. The partners are expected to visit & signature the LLP agreement at the branch of the ROC (Registrar of Companies).
• It also has endless succession, that ensures the corporation will not break if either of the partners expires or go bankrupt.
• There should be at least two partners, at least one of whom should be a citizen of India, but the maximum number of partners is not restricted and foreign partners are also permitted.
• For charity or nonprofit purposes, an LLP could not be created.

• One Person Company or OPC: According to Sec.2 (62) of the Companies Act, 2013, ‘company which has only 1 person as a shareholder’. Rule number 3 of the Companies (Incorporation) Rules, 2014 says that :
  • Only a natural person who is an Indian citizen and an Indian resident can form 1 person company.
  • It cannot execute non-banking financial investment pursuits.
  • It is paid-up share capital which is not more than ₹ 50 Lakhs.
  • Its aggregate annual turnover of 3 years does not cross ₹ 2 Crores.

Unit:III

Q1.Discuss the various type of business combination. & Also Explain the Difference type & Importance Business Combination.

Business Combination is a type of transaction in which businesses aim to grow in size using one organization acquiring the other organization and, therefore, taking control of the business activities and the employees of the other organization. In simple terms, it is a consolidation of two or more businesses to achieve a common goal by eliminating competition.

#1 – Horizontal Combination

This type of consolidation of two or more organizations operating in the same line of business. This combination results in a reduction of competition and larger market capitalization

.

Example

A combination of two major sugar manufacturers, ‘Sugar bell’ and ‘Crystal Sweeteners’, operating in the same line of business is an apt example of a horizontal business combination. This would result in the termination of the competition.

#2 – Vertical Combination

The vertical combination is a combination of different stages of the same business. For example, many businesses operate independent businesses at different stages. This is also known as sequence combination or process combination. It combines different departments under one single control point. The key objective is to reduce the per-unit cost of production.

Example

‘Mountain Mist,’ a packaged water manufacturer, combines with a PET bottle manufacturer ‘Beige Plasto.’ This type of combination will bring two different processes under single management. In addition, the inclusion of the bottle manufacturing unit under the same management will reduce per-unit cost.

#3 – Lateral Combination

This type of business combination is the combination of two businesses that deal in a different line of business; however, they are connected in some way or another.

3a) Convergent

A convergent combination is the combination of different business units, say suppliers of raw materials

 to a major firm. In this type of combination, the larger firm benefits from supplying raw materials and its inventory under its control.

Example

Supplier A deals in printer ink, papers, and folders, and Supplier B deals in the same business. ‘Pressfit’ is a leading printing press. Supplier A and B with Press Fit will be a concurrent combination.

3b) Divergent

A divergent combination is the combination of major firms that operate in related businesses that use the major firm’s products as raw material.

Example

An oil refinery organization gives its crude oil to its dependent organizations as raw materials. The downstream industries use this for creating petroleum and machinery oils. The combination of such a business is called divergent lateral combination.

3c) Diagonal

Diagonal combination refers to a combination of the manufacturing companies with a service-related business. This helps businesses provide service for the products that have been sold and creates a sense of customer satisfaction and trust since the customer can expect after-sales service at the hands of the organization itself.

Example

Service centers for various mobile phone manufacturers are not owned by the manufacturer but authorized by them. In this way, the service center can cater to the customer’s needs by delivering original spare parts and providing a service that is authentic and reliable.

3d) Mixed

Mixed combinations are also termed Circular combinations. These unrelated businesses combine to form a new business called a mixed combination. The new business form will have insights from the management of both the organizations, which will help create an organizational and functional structure that creates the most efficient way to operate the business.

Example

An insurance company combined with a shipping and cargo company to form a new business is an example of a mixed combination.

Advantages

Managing the business becomes efficient since decisions can be made based on a holistic view of the key areas of business.

The major advantage of a business combination is the economies of scale

, which refers to reducing the per-unit cost of production.

Reduced competition, in other words, refers to increased market capitalization and a relative spike in the profits gained.

The businesses’ customers would benefit from the combination since the new organization will engage in activities to enhance the current procedures to deliver a better product to the customers.

Disadvantages

Loss of employment – Since processes will be combined, the workforce required for certain tasks will be reduced.

It can result in a disparity of the economy since the economic power would be transferred to a few people managing the industry. Thereby creating differences in the income distribution in the economy.

At the initial phase, communicating effectively and bringing each department or business unit on the same page is a mammoth task since there can be cultural differences among the employees of the organizations. This can result in inefficient coordination and require rework for a simple task.

Q2.Explain The Concept Of Remuneration & Also Explain the Remuneration  types & Methods.

Ans:As an employer, it is important to know that compensation to your personnel includes more than their basic pays. It comprises several potentially taxable benefits.

Having an understanding of which types of compensations are included in remuneration and its tax implications is beneficial. It helps you to make an informed decision on the benefits you would like to offer your employees. Read on to know more about remuneration.

Remuneration is the total compensation paid to the employees for their services. In addition to the basic salary, it includes benefits like commissions, bonuses, overtime pays, and other financial compensation paid by the employers to their personnel.

Perks may or may not be a component of the employees' compensation. For example, a generous holiday plan and an on-site gymnasium are perks but these do not offer any monetary benefits to the employees.

Therefore, it can include direct monetary payouts or other taxable fringe benefits like the use of a corporate vehicle.

Different types of remuneration

There are different types of remuneration based on the type of worker and the kind of work they do. Some of these include the following:

Salary

The basic salary is the base compensation paid to the employees and often comprises between 35% and 50% of the total pay. It is a pre-determined amount paid before any increases or reductions.

Wages

Wages are monetary compensations paid to the employees in exchange for completed work or providing a service. The amount can be fixed (piece rate or task wage) for every task that is to be completed.

Wages can also be paid at an hourly or daily rate (wage labor) or based on any other measurable quantity of completed work.

Commission

In addition to the regular salary remuneration, some employers may offer sales commissions to their people. Some companies may offer only commission-based jobs where the compensation varies based on different work variables, which are often determined by the employers.

For example, the commission may depend on the quantum of sales, frequency of sales, number of customers brought, and performance. The commission is generally a percentage of the pre-determined variable.

Bonus

Bonus is generally the compensation given to employees over and above their annual remuneration. This amount is paid in addition to the base salary of the employees and may be used as a reward or recognition of the employees’ achievements.

Bonuses can be variable; however, most often these are performance-based. This means that companies distribute bonuses based on the performance of individual employees or team contributions.

Most bonuses are discretionary where the manager decides on who is eligible to receive it and the quantum. Non-discretionary bonuses are a part of the employee contract.

Incentives

Incentives are used for motivating the employees to improve their performance. These can be cash or non-cash incentives and may comprise part of the managerial remuneration.

Some examples of non-cash incentives include wellness programs, trips, and even stock options.

Method Of Remuneration 

Various methods of remunerating labour are:

1. Time or Day Rate System 

2. Straight Piece Work Rate System 

3. Time Rate v/s Piece Rate System

4. Incentives and Profit Sharing 

Method # 1. Time or Day Rate System:

This is the most common system found in practice. Under this the worker is paid an hourly, daily, weekly or monthly rate of wages. Thus, his remunera­tion depends upon the number of hours for which he is employed and not upon the amount of his production.

(i) There is no dispute about the amount of payment, because it has been fixed from the very beginning and the worker knows in advance what he is going to get.

(ii) It possesses security from the stand point of the workers because they are sure to receive their wages irrespective of temporary reduction in personal efficiency, which may result from unavoidable accident or sickness or fatigue from outside activities.

(iii) The quality of the work can be achieved very easily, as there is no need of hurrying about the things to be done.

(iv) There is no rough handling of machinery due to “slow and steady” working of workers.

(v) The interruptions to work due to breakdown of machinery or some other part of the plant will not make workers to suffer from the loss of wages.

(vi) There are no difficult calculations to be made. If there are many calculations to be made to arrive at the remuneration of a worker, it is possible that an illiterate worker may doubt the exactness of his remuneration from time to time.

Method # 2. Straight Piece Work Rate System:

This is an improvement on the Time Rate Sys­tem. Under this, a fixed rate of wage is paid for each piece or unit produced.

Suitability:

Hence this system is only suitable where the worker repeats regularly a defi­nite operation or produces the same type of products continuously. Many employers in India have introduced this system and it has been found efficient, easy and economical.

For the application of this system, a careful time study is conducted and different types of workmen are observed for the time they take in carrying out the job. The standard time for the completion of a job by the workmen of different calibers is found out and the rate of the wage per job is decided such that every worker can get at least a minimum wage. The skilled and active workers are free to earn more by putting more efforts.

Under this system mini­mum weekly wages are fixed for every worker, which shall be paid to him irrespective of his output during the week, provided he has worked for the full working hours required in a week.

If a worker is absent for some length of time during a week his wages will be deducted propor­tionately, i.e., a week consists of 48 working hours and if a worker works for only 40 hours, then he will be paid 5/6 of his regular weekly wages. Thus the payment is based on time rate system.

Method # 3. Time Rate v/s Piece Rate:

In the piece rate system, worker is paid per piece of job and no consideration of time taken is made. Actually this system is an improvement on the “Time Rate” system of payment. This system gives every workman an opportunity to earn more by putting more efforts and at the same time output also increases.

In the time rate system strict supervision is required, as now- a-days it has become difficult to extract more and more work from workers. Foremen are always found saying to workers, “you are wasting time” or “you have not so far completed the job” or “do this or that by that time” and so on.

While in the piece rate system workers believe that every second has its value and “work is worship”. This system is applicable to productive workers, where they repeat regularly a definite operation or produce the same type of product constantly. Many employers in India have introduced this method and they found it more simple, easy, economical and efficient.

This system is not suitable for workers such as Foreman, Supervisor, Time-keeper, Cleaner, Engine men etc. and Time rate system is used as the nature of their work is such that “Time” alone can be taken as the basis to remunerate them.

The other drawback of piece rate system is that no incentive scheme can be introduced and worker’s life may reduce because of hard labour involved to earn more and more. It also affects the quality of product.

Method # 4. Incentives and Profit Sharing:

(Supplementary Compensation):

Incentives refer to performance linked compensation paid to improve motivation and pro­ductivity of the employees. It is related directly or indirectly to productivity and profitability of the enterprise, and includes all the plans that provide extra pay for extra performance in addi­tion to regular wages for the job.

Wage incentive scheme is a managerial device of increasing a worker’s productivity. It can also be defined as a method of sharing gains in productivity with workers by rewarding them financially for their increased rate of output. Wage incentive plans are designed to improve productivity and to secure better utilisation of human and material resources of the enterprise.

Incentives:

It is something that encourages a worker to put in more productive efforts voluntarily. Mostly, workers are not willing to exert themselves to produce anywhere near their full capac­ity unless their interest in work is created by some kind of reward. This is called ‘incentive’.

The incentive is a kind of monetary reward which is closely related to the performance of a worker, resulting increase in wages corresponding to an increase in output.

Types of Incentives:

(a) Financial Incentives.

(b) Non-financial Incentives.

(a) Financial Incentives:

If an employer finds that he will be earning an extra profit of Rs. 25, if a particular work is finished in 5 hours less than the prescribed time. Now, if the workman is promised an extra payment of Rs. 10. This extra payment is known as incentive and is in the first instance calculated in terms of time in hours of employment.

Methods of financial incentive payment:

(i) Piece rate system.

(ii) Cent per cent premium.

(iii) Halsey premium plan.

(iv) Weir premium plan.

(v) Bedaux premium plan.

(vi) Rowan premium plan.

(vii) Emersion efficiency plan.

(viii) Gantt’s task and bonus system.

(ix) Taylor’s differential piece-rate system.

(x) Merric’s multiple piece-rate system.

(i) Piece Rate system:

Under this system, a piece rate for the completion of job is fixed. Now, if a worker com­pletes the job earlier, he can save his time and in that saved time, he can make jobs and whatever the extra money he gets for the extra work, it wholly goes to him but the employer will also be benefitted by the savings in overheads for the extra output.

It will be more clear by the following numerical example:

Example 1:

A worker is employed for the manufacture of M.S. pins at a piece rate of 150 paise. He has to prepare 40 pins in 8 hours of work, but he prepared 55 pins in 8 hours. Calcu­late his total daily earning by piece rate system.

Also calculate extra earnings.

Solution:

Rate per piece = 150 paise. He has to manufacture minimum 40 pins per day.

Then, his normal earning per day = 40 × 150 = Rs. 60.00.

But he prepared 55 pins/day.

... Total earning/day = 55 × 150 = Rs. 82.50 Ans.

Therefore, his extra earning will be Rs. 82.50 – Rs. 60.00 = Rs. 22.50 Ans.

From this, it is clear that all the extra money earned by the worker goes to him only.

(ii) Cent Per Cent Premium:

In this system, the standard time for the completion of a job is fixed and its rate of comple­tion during this period is also fixed. Now the worker who completes the job in this standard time is not given any incentive but those who complete the job earlier, get full payment for the time saved.

Example 2:

The standard time for the completion of a job is 8 hours, and the worker is paid Rs. 100.00 for it. If he completes it in 6 hours, calculate his earnings by cent percent premium system for the whole day (i.e., for 8 hours of work).

Solution:

Standard time for the job = 8 hours

Wages of 8 hours = Rs. 100.00

Time taken by worker to complete the job = 6 hours

In 6 hours, worker can earn Rs. 100.00

In 8 hours of a day he will earn Rs. 100/6 × 8 = 400/3 = Rs. 133.33.

Therefore, worker gets cent percent of his savings.

Actually, this is also a piece rate system but adopted in the case of bigger jobs, in which a single job takes several days for its completion, and if a number of small jobs can be completed in a day, then piece-rate system is used.

(iii) Halsey Premium Plan:

In this system an hourly rate or daily rate is guaranteed to the workers. A standard time is fixed for the performance of each job and the worker is paid the agreed rate per hour for the time spent thereon plus a fixed percentage (usually 33 ⅓%) of the time he can save on the standard. This plan is easy to introduce.

It will be clear by the following example:

Example 3:

Standard time for a given job is 15 hours and hourly rate of wages is Rs 5.00. A worker completes the job in 10 hours and he is allowed 33⅓% of the time saved as incentive. Calculate the earnings of the worker and also direct saving of employer.

Solution:

Worker will receive wages for 10 hours plus 33⅓% of the time saved as bonus, that is, its further 5/3 hours wages.

Hence total remuneration for 11⅔ (i.e. 10 + 5/3) hours at the rate of Rs. 5.00 per hour is Rs. 58.33. Thus the employer has made a saving of Rs. 16.67 (i.e., Rs. 75.00-58.33) in direct wages, whereas the worker has gained Rs. 8.33 extra in 10 hours.

Therefore, from this it is clear that a part of the saving goes to the worker and remaining part of the saving to the employer.

(iv) Weir Premium Plan:

This is similar to Halsey premium plan but in this worker gets upto 50% of his extra output along with standard day rate.

(v) Bedaux Premium Plan:

This is also like Halsey and Weir premium plans. But in this workers are given at the rate of 75% of their extra output along with standard day rate.

(vi) Rowan Premium Plan:

In this, the worker is again guaranteed his daily or hourly rate. A standard time is fixed for each job and a premium is given in the ratio of the time saved to the standard time multiplied by the time taken on the job.

Unit: IV

Q1.Define Organizing. Discuss the various steps involve in organizing process. 

Ans: Organising is that managerial process which seeks to define the role of each individual (manager and operator) towards the attainment of enterprise objectives; with due regard to establishing authority-responsibility relationships among all; and providing for co-ordination in the enterprise-as an in-built device for obtaining harmonious groups action.

(i) Identification and classification of activities: This process involves’ division of labour that divides the work into different tasks performed separately by employees.

(ii) Grouping of activities or departmentalization: Jobs identified from the previous step are further grouped together and put into separate departments.

(iii) Assignment of duties: In this step, employees are assigned and granted their duties and responsibilities through a document called ‘job description’ that clearly defines their responsibilities.

(iv) Establishing reporting relationship: The final step involves establishing a chain of common wherein employees will have to report to an authority like the top management or superiors.

Q2.Define Delegation of Authority. & Also Explain the objective  and Important of Delegation of Authority.

Ans: Delegation of authority refers to the transfer of authority from the level of supervisor to the level of subordinates. In other words, delegation is the downward transfer of authority from the manager to the subordinate.

Delegation of authority is important as the superior in an organisation is not able to manage all the work by himself. Delegation of authority helps the managers to focus on more important functions of the organisation that need to be taken care of on priority.

Delegation is the transfer of responsibility which is less important and can be performed by the subordinates. This also brings a sense of responsibility to the work done by the subordinates and paves the way for growth of the subordinates.

Transfer of authority to subordinates does not mean that the subordinate is accountable for the actions, it is the superior who will be accountable for all the actions. Only tasks that can be completed effectively by the subordinates are delegated without the actual transfer of accountability.

Elements of Delegation

Delegation consists of the following elements.

1. Authority

2. Responsibility

3. Accountability

Let us discuss all these elements one by one.

Authority: One of the essential elements of delegation is authority which is the power to complete an assigned task. Without authority a subordinate is unable to execute the task perfectly. In order to complete the task as is expected by the manager, the manager has to provide authority of executing that task to the subordinate.

Responsibility: Responsibility is another element of delegation which is assigning the subordinate a task that needs to be executed. When the superior assigns any task to the subordinate it becomes the obligation of the subordinate to perform that task with responsibility.

The feeling of responsibility arises from the superior subordinate relationship where a subordinate is obliged to perform the job as assigned by the superior.

Accountability: Accountability element of delegation refers to the answerability of a subordinate to his superior for the job or task that is assigned. Accountability flows in an upward direction, which means the subordinate is accountable to the superior.

Although the subordinate is accountable to the superior, the actual accountability of that task and its outcome rests with the superior as accountability is not transferred to the subordinate, it is just imposed till the time the task is completed.

Importance of Delegation

Delegation is important in an organisation due to the following reasons

1. Delegation of authority allows more time for managers to concentrate on the tasks that are of higher importance for the organisation. Also, delegation allows for changing of the routine work which brings a sense of freedom.

2. When authority is delegated by a superior to a subordinate, the subordinate gets to learn new work which helps in the growth of the employee and provides an opportunity to develop new skills that can improve the chances of promotion.

3.When superiors delegate any function to the subordinates, it motivates the subordinates as they feel trusted and appreciated in the organisation. The direct benefit of this is improvement in employee morale and productivity.

Objective of Delegation Of Authority

1. Assignment of Duties to Subordinates 

Before delegation can begin, the delegator needs to determine the duties which they want the subordinate(s) to perform. It is in this stage that the superior lists the activities they want to be performed by their subordinates, along with the targets to be achieved, and then communicates this to those recruited. Duties are then assigned to the subordinates, as per their job roles, rankings, and expectations. 

2. Transfer of Authority to Perform the Duty 

The second stage is when the delegator determines the necessary amount of authority required to perform the assigned duty and bestows that on the subordinate(s). During this phase, the manager must always ensure that the authority is strictly delegated just to perform the assigned responsibility, since disproportionate authority lends risk to misunderstanding by the subordinate.  

3. Acceptance of the Assignment 

It is in this stage that the subordinate can either accept or reject the tasks assigned to them. If the delegate refuses to accept the duty, and subsequently the authority to perform it, it is the responsibility for the delegator to either investigate as to why the delegate has refused or to identify another person who is capable and willing to undertake the assignment. Once the task is accepted by a subordinate, the process reaches its final stage. 

4. Accountability 

The process of delegation of authority concludes when an obligation is established on the part of the subordinate, that indicates the performance expectation and the amount of responsibility and authority assigned to him. Once the assignment is accepted, the subordinate becomes accountable for the completion of the duty and is held responsible to their superior for their performance.

Q2.Define departmentation  & Discuss the Various bases of Departmentation. 

Ans: Departmentation is the process of grouping various activities into separate units of departments. A department is a distinct section of the business establishment concerned with a particular group of business activities of like nature. The actual number of departments in which a business house can be divided depends upon the size of establishment and its nature.

Types of Departmentation:

There are several bases of Departmentation. The more commonly used bases are—function, product, territory, process, customer, time etc.

These are explained below:

(A) Departmentation by Functions:

The enterprise may be divided into departments on the basis of functions like production, purchasing, sales, financing, personnel etc. This is the most popular basis of departmentation. If necessary, a major function may be divided into sub-functions. For example, the activities in the production department may be classified into quality control, processing of materials, and repairs and maintenance.

(B) Departmentation by Products:

In product departmentation, every major product is organised as a separate department. Each department looks after the production, sales and financing of one product. Product departmentation is useful when the expansion, diversifica­tion, manufacturing and marketing characteristics of each product are primarily significant.

It is generally used when the production line is complex and diverse requiring specialised knowl­edge and huge capital is required for plant, equipment and other facilities such as in automo­bile and electronic industries.

(C) Departmentation by Territory:

Territorial or geographical departmentation is spe­cially useful to large-scale enterprises whose activities are widely dispersed. Banks, insu­rance companies, transport companies, distribution agencies etc. are some examples of such enterprises, where all the activities of a given area of operations are grouped into zones, branches, divisions etc.

(D) Departmentation by Customers:

In such method of departmentation, the activities are grouped according to the type of customers. For example, a large cloth store may be divided into wholesale, retail, and export divisions. This type of departmentation is useful for the enterprises which sell a product or service to a number of clearly defined customer groups. For instance, a large readymade garment store may have a separate department each for men, women, and children. A bank may have separate loan departments for large-scale and small- scale businessmen.

(F) Departmentation by Time and Numbers:

Under this method of departmentation the activities are grouped on the basis of the time of their performance. For instance, a factory operating 24 hours may have three departments for three shifts—one for the morning, the second for the day, and the third for the night.

In the case of departmentation by numbers, the activities are grouped on the basis of their performance by a certain number of persons. For instance, in the army, the soldiers are grouped into squads, companies, battalions, regiments and brigades on the basis of the number pre­scribed for each unit.

Such type of departmentation is useful where the work is repetitive, manpower is an important factor, group efforts are more significant than individual efforts, and group performance can be measured. It is used at the lowest level of organisation.

Additional Point:

Stock Market:

Meaning of Stock Exchange

A stock exchange is an important factor in the capital market. It is a secure place where trading is done in a systematic way. Here, the securities are bought and sold as per well-structured rules and regulations. Securities mentioned here includes debenture and share issued by a public company that is correctly listed at the stock exchange, debenture and bonds issued by the government bodies, municipal and public bodies.

Functions of Stock Exchange

Following are some of the most important functions that are performed by  stock exchange:

1. Role of an Economic Barometer:  Stock exchange serves as an economic barometer that is indicative of the state of the economy. It records all the major and minor changes in the share prices. It is rightly said to be the pulse of the economy, which reflects the state of the economy.
2. Valuation of Securities: Stock market helps in the valuation of securities based on the factors of supply and demand. The securities offered by companies that are profitable and growth-oriented tend to be valued higher. Valuation of securities helps creditors, investors and government in performing their respective functions.
3. Transactional Safety: Transactional safety is ensured as the securities that are traded in the stock exchange are listed, and the listing of securities is done after verifying the company’s position. All companies listed have to adhere to the rules and regulations as laid out by the governing body.
4. Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of the various companies. This process of trading involves continuous disinvestment and reinvestment, which offers opportunities for capital formation and subsequently, growth of the economy.
5. Making the public aware of equity investment: Stock exchange helps in providing information about investing in equity markets and by rolling out new issues to encourage people to invest in securities. 
6. Offers scope for speculation: By permitting healthy speculation of the traded securities, the stock exchange ensures demand and supply of securities and liquidity.
7. Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready platform for the sale and purchase of securities. This gives investors the confidence that the existing investments can be converted into cash, or in other words, stock exchange offers liquidity in terms of investment.
8. Better Capital Allocation: Profit-making companies will have their shares traded actively, and so such companies are able to raise fresh capital from the equity market. Stock market helps in better allocation of capital for the investors so that maximum profit can be earned.
9. Encourages investment and savings: Stock market serves as an important source of investment in various securities which offer greater returns. Investing in the stock market makes for a better investment option than gold and silver.

Commodity Market

A commodity market can be defined as a virtual or a physical marketplace for purchasing, trading, and selling primary products or raw materials. Today, across the world, there are a total of about 50 vital controlling commodity markets. These markets supervise, control, and monitor the global rates of these commodities.

Types of Commodity Markets

Hard commodity: The commodities that are derived naturally are known as hard commodities. Examples: Oil, gold, coal, and more

Soft commodity: All animal livestock or agricultural products come under soft commodities. Examples: Sugar, soybean, maize, wheat, and more.

Types of Organisation and their Structure

There are two broad categories of organisation, which are:

1. Formal Organisation

2. Informal Organisation

Formal Organisation: Formal organisation is that type of organisation structure where the authority and responsibility are clearly defined. The organisation structure has a defined delegation of authority and roles and responsibilities for the members.

The formal organisation has predefined policies, rules, schedules, procedures and programs. The decision making activity in a formal organisation is mostly based on predefined policies.

Formal organisation structure is created by the management with the objective of attaining the organisational goals.

There are several types of formal organisation based on their structure, which are discussed as follows:

1. Line Organisation

2. Line and Staff Organisation

3. Functional Organisation

4. Project Organisation

5. Matrix Organisation

Let us learn about these organisation structures in detail in the following lines.

Line Organisation: Line organisation is the simplest organisation structure and it also happens to be the oldest organisation structure. It is also known as Scalar or military or departmental type of organisation.

In this type of organisational structure, the authority is well defined and it flows vertically from the top to the hierarchy level to the managerial level and subordinates at the bottom and continues further to the workers till the end.

There is a clear division of accountability, authority and responsibility in the line organisation structure.

Advantages of Line organisation

1. Simple structure and easy to run

2. Instructions and hierarchy clearly defined

3. Rapid decision making

4. Responsibility fixed at each level of the organisation.

Disadvantages of Line organisation:

1. It is rigid in nature

2. It has a tendency to become dictatorial.

3. Each department will be busy with their work instead of focusing on the overall development of the organisation.

Line and Staff Organisation: Line and staff organisation is an improved version of the line organisation. In line and staff organisation, the functional specialists are added in line. The staff is for assisting the line members in achieving the target effectively.

Advantages of Line and Staff organisation

1. Easy decision making as work is divided.

2. Greater coordination between line and staff workers.

3. Provides workers the opportunity for growth.

Disadvantages of Line and Staff Organisation

1. Conflict may arise between line and staff members due to the improper distribution of authority.

2. Staff members provide suggestions to the line members and decision is taken by line members, it makes the staff members feel ignored.

Functional Organisation: Functional organisation structure is the type of organisation where the task of managing and directing the employees is arranged as per the function they specialise. In a functional organisation, there are three types of members, line members, staff members and functional members.

Advantages of Functional organisation

1. Manager has to perform a limited number of tasks which improves the accuracy of the work.

2. Improvement in product quality due to involvement of specialists.

Disadvantages of Functional organisation

1. It is difficult to achieve coordination among workers as there is no one to manage them directly.

2. Conflicts may arise due to the members having equal positions.

Project Organisation: A project organisation is a temporary form of organisation structure that is formed to manage projects for a specific period of time. This form of organisation has specialists from different departments who are brought together for developing a new product.

Advantages of Project organisation

1. The presence of many specialists from different departments increases the coordination among the members.

2. Each individual has a different set of responsibilities which improves control of the process.

Disadvantages of Project Organization

1. There can be a delay in completion of the project.

2. Project managers may find it difficult to judge the performance of different specialists.

Matrix Organisation: Matrix organisation is the latest form of organisation that is a combination of functional and project organisation. In such organisations there are two lines of authority, the functional part of the organisation and project management part of the organisation and they have vertical and horizontal flow of authority, respectively.

Advantages of Matrix Organisation

1. Since the matrix organisation is a combination of functional and project management teams, there is an improved coordination between the vertical and horizontal functions.

2. Employees are motivated as everyone will be working towards one project.

Disadvantages of Matrix Organisation

1. Due to the presence of vertical and horizontal communication, there will be increased cost and paperwork.

2.Having multiple supervisors for the workers leads to confusion and difficulty in control.

Informal Organisation: Informal organisations are those types of organisations which do not have a defined hierarchy of authority and responsibility. In such organisations, the relationship between employees is formed based on common interests, preferences and prejudices.

Cooperative Society

There are different types of business organisations, one such form is of cooperative society. Cooperative societies are formed with the aim of helping their members. This type of business organisation is formed mainly by weaker sections of the society in order to prevent any type of exploitation from the economically stronger sections of the society.

Cooperative societies need to be registered under the Cooperative Societies Act, 1912 in order to function as a legal entity. Members of the society raise the capital within themselves.

Types of Cooperative Societies

Following are some of the types of cooperative societies:

1.Consumer Cooperative Society: Consumer cooperative societies are formed with the objective of protecting the consumer interests. Individuals who wish to purchase products at reasonable rates most likely join consumer cooperative societies. In such type of societies, there are no middlemen involved, the product is purchased directly from the producer and sold to consumers.

2.Producer Cooperative Society: Producer cooperative societies are formed with the objective of protecting the interests of small producers. These cooperatives help producers in maintaining their profit and also to assist producers in procuring items that will be helpful in production of goods and services.

3.Credit Cooperative Society: These cooperative societies are set up with the objective of helping people by providing credit facilities. They provide loans at a minimal rate of interest and flexible repayment tenure to its members and protect them against high rates of interest that are charged by private money lenders.

4.Housing Cooperative Society: Housing cooperative societies are formed with the objective of providing housing facilities to the members of the society. This proves to be beneficial for the lower income groups as it allows them to avail housing benefits at a very affordable price.

5.Marketing Cooperative Society: These societies are formed with the objective of providing small producers a platform to sell their products at affordable prices and also eliminate middlemen from the chain, thus ensuring adequate profits.

Advantages of Cooperative Society

Following are some of the advantages of cooperative societies:

1. The products that are sold in the cooperative societies are cheaper than the market.

2. Procurement of products is done directly from the producers, which removes the middlemen, thereby generating more profit for the producers and consumers.

3. Members of the cooperative society can get quick loans.

4. There is no black marketing involved.

Disadvantages of Cooperative Society

Some of the disadvantages of cooperative societies are:

1. Due to the association of members of low income groups, the scope of raising capital is limited.

2. It suffers from inefficiencies in management.