NCERT Solutions For Class 12 Business Studies Controlling Chapter 8

Controlling Chapter 8 NCERT Solutions For Class 12 Business Studies

NCERT Book Solutions For Class 12 Business Studies Controlling

Takshila Learning’s NCERT Solutions for Business Studies are an advanced and next stage of Class 11 NCERT Solutions in business studies. We provide the basic fundamentals of the subject in Class 11 and then move on to an advanced degree of concepts in Class 12. The business studies topics are related to our practical life and dealt with in an easy way for understanding.

 

NCERT Solutions For Class 12 Business Studies Controlling Chapter 8
NCERT Solutions For Class 12 Business Studies Controlling Chapter 8

 

NCERT Solutions For Class 12 Business Studies Controlling Chapter 8 provides us with all-inclusive information on all concepts. As students would have to learn the basics about the subject in class 12, this curriculum for class 12 is a comprehensive study material, which explains the concepts in a great way.

Questions Covered In NCERT Solutions For Class 12 Business Studies Controlling 

Multiple Choice:

  1. An efficient control system helps in
  • (a) Accomplishes organisational objectives
  • (b) Boosts employee morale
  • (c) Judges accuracy of standards
  • (d) All of the above

Ans: (a) An efficient control system helps in achieving all the aforesaid objectives. Controlling refers to the process of assessing the progress of current tasks and activities and setting work standards to achieve the goals of the organization. An efficient control system helps in keeping a close watch on the progress of work towards accomplishment of organizational goals and takes necessary corrective actions. It helps to track changes in the organization and business environment and, thus, helps to identify the accuracy of the standards set. Along with this, what is expected of the employees by informing them about controlling morale and motivating them to work according to the prescribed policies.

  1. Controlling function of an organisation is
  • (a) Forward looking
  • (b) Backward looking
  • (c) Forward as well as backward looking
  • (d) None of the above

Ans: (c) Control is looking forward as well as backward as an essential part of management. It is a backward task in the sense that it assesses the work done and analyzes the deviations from the set standards. On the basis of these deviations it attempts to take necessary corrective measures. Thus, it guides the future course of action and aims to improve future performance. In this sense, it is also a forward looking function. Therefore, we can say that controls are forward-looking as well as backward-looking functions.

  1. Management audit is a technique to keep a check on the performance of
  • (a) Company
  • (b) Management of the company
  • (c) Shareholders
  • (d) Customers

Ans: (b) Management audit refers to the systematic evaluation of the overall operations of a company’s management. It aims to evaluate the efficiency and effectiveness of management and helps identify areas where it lags behind. This reveals deficiencies in performance and helps in taking corrective measures. Therefore, the management audit monitors the overall performance of the company’s management.

  1. Budgetary control requires the preparation of
  • (a) Training schedule
  • (b) Budgets
  • (c) Network diagram
  • (d) Responsibility centres

Ans: (b) The budgetary control technique of managerial control involves preparing a budget for each operation of the organization and then comparing actual results with budgetary standards.A budget is a quantitative statement that defines the objectives to be achieved in a specified time period and the policies to be followed.

  1. Which of the following is not applicable to responsibility accounting?
  • (a) Investment centre
  • (b) Accounting centre
  • (c) Profit centre
  • (d) Cost centre

Ans: (b) Accounting center responsibility is not a part of accounting. Responsibility accounting basically refers to a system in which the various divisions of the organization are established as responsibility centers. In this, each department is given a defined goal and the head of the department (manager) is made responsible for achieving it. They are different types of responsibility centers such as cost centers, investment centers, profit centers and revenue centers.

 

Short Answer Type:

  1. Explain the meaning of controlling.

Ans: Controlling refers to the task of assessing and evaluating the progress of work. It involves setting a specific criterion or standard for the task and then comparing the actual work with the set standards. It helps in finding deviations from the set goals and as such, takes necessary corrective action. This ensures that everything goes according to the plans adopted. It also ensures full and efficient use of resources. Control is an essential managerial function because it closely monitors the progress of work and forms the basis of future actions and planning.

  1. ‘Planning is looking ahead and controlling is looking back’. Comment.

Ans: Planning is looking forward and control is looking back. This statement is partially true. Planning and psychological about what is to be done and how it is to be done is a psychological process of thinking and decision making in advance. It is a mental activity that involves setting goals and also the tasks through which they are to be accomplished. Thus, it is said that the plan is looking ahead because it involves predicting the future. Control, on the other hand, involves assessing past performance and evaluating them against prescribed standards. In this sense, control is called a backward looking task.However, both of these statements are only partially true. Although planning is a future concept, it is based on past actions and experiences. The future cannot be planned without looking into the past. Similarly, although control involves the evaluation of past performance, it aims to improve future performance by taking necessary corrective actions. Therefore, we can say that planning and control are looking backward as well as looking ahead.

  1. ‘An effort to control everything may end up in controlling nothing’. Explain.

Ans: The statement, may attempt to control everything is “with respect to the principle of exception by management” may end in controlling anything. This emphasizes the fact that everything cannot be effectively controlled. According to this theory, instead of controlling each deviation in performance, an acceptable range of deviations in different activities should be set and only those deviations that are beyond acceptable limits should be brought to the attention of managers for control. In other words, only major deviations that are beyond permissible limits should be accepted.For example, assume that the allowable limit to increase input costs is 3 percent. In this case, only a 3% increase in input costs (say 7%) should be brought to the attention of managers. On the other hand, less than 3% increase (say 1%) should be neglected. Therefore, instead of trying to control everything there should be an attempt to control only the major things.

  1. Write a short note on budgetary control as a technique of managerial control.

Ans: Budgetary control is a technique of control that involves preparing plans in the form of budgets. A budget refers to a financial or a quantitative statement that defines the goals to be achieved and the policies to be followed over a specific period of time. Actual performance is compared to budgetary standards. This comparison helps identify deviations and, as such, guides in taking appropriate corrective measures. Budget can be prepared for various divisions of the organization such as sales budget, production budget, purchase budget, etc. However, for the budget to be effective, future projections must be made carefully. Budgeting also serves as a source of motivation for employees by which standards are set. Thus, it encourages them to achieve the set objectives. In addition to this, It is also used to facilitate coordination between various divisions / departments of the organization. In addition, proper budgeting ensures that resources are allocated to various divisions according to their needs. This helps in optimal utilization of resources.

 

  1. Explain how management audit serves as an effective technique of controlling.

Ans: A management audit refers to a comprehensive and constructive assessment of the overall performance of an organization’s management. It aims to improve the overall effectiveness and efficiency of management. It evaluates all the work done by managers and helps to identify deficiencies in work performance. The effectiveness of management audit for control can be judged from the following points.i. Identifying Deficiencies: A management audit helps identify current as well as potential deficiencies in performances. Which helps in taking necessary corrective measures.ii. Improving efficiency: Through management audit, various activities of management can be continuously monitored. Thereby, it helps to improve the overall efficiency of management.iii. Enhances Coordination: It improves coordination between employees as well as various functions of the organization as it continuously oversees the work.iv. Adapting to environmental changes: It helps the organization to adapt to environmental changes. This is done by ensuring that managerial policies and strategies are up to date.

Long Answer Type:

  1. Explain the various steps involved in the process of control.

Ans: Control is a systematic approach to manage and control organizational functions. Following are the steps involved in the control process.(i) Setting standards: Establishing standards involves developing benchmarks against which actual performance is to be measured. The standards can be set in qualitative as well as quantitative terms. Qualitative benchmarks can be in the form of work coordination, high goodwill or increased motivation levels of employees, etc. For example, to improve motivation levels among employees, a standard can be set in terms of the number of initiatives taken. A quantitative benchmark can be in the form of sales goals, a production or time spent on a particular task, etc. For example, completing 10 pieces a day in a shirt factory is a quantitative goal. The standards set should be such that they are easy to compare.

 

(ii) Measuring actual performance: Once the standards are set, the next step is to measure the actual performance of the activities. This can be done through various techniques such as personal observation, sample testing, performance reports, etc. The test must be done accurately and reliably so that the correct measurements are taken for comparison. The measurement can be done after the completion of an activity as well as when in progress. For example, when assembling small parts of a large machine, the parts can be tested before assembling. This will ensure continuous monitoring of small parts as well as the final machine. (iii) Comparison of performances:The performance, once measured, is compared to the set standards. Such comparisons help to assess deviations in the task. Thereby, it guides managers to take necessary steps so that performance can be improved. These comparisons are easy when they are quantitatively related. For example, efficiency in work can be measured against standard cost in terms of cost.(iv) Analysis of deviations: Each organization encounters deviations when comparing actual performance with pre-developed standards. Thus, it is important to find deviations that are in the permissible range. It is said that deviations in key areas should be attended to first. Managers typically use ‘Critical Point Control’ and ‘Exceptions by Management’ to analyze deviations.Critical point control: An organization cannot monitor all the activities of management. Thus, this technique of control aims to focus only on the key outcome areas (KRAs) that affect the entire organization. For example, an increase in input cost will be more important than an increase in static costs.   Management by Exception: This technique of management is based on the belief that in trying to control anything results in controlling ‘anything’. According to this, only necessary and significant deviations that are beyond acceptable limits should be controlled. For example, if there is a 6 percent increase in labor costs, while the permissible limit is just 3 percent, then it should be brought to the notice of management immediately. On the other hand, a 2 percent increase in cost can be ignored.• Once the deviation is recognized, it is necessary to accept the cause. There may be a number of factors causing deviations in work such as infectious standards, process deficiencies, under-utilization of resources, changes in business environment, etc. Thus, it becomes important for management to take into account the causes of related deviations.  (v) Corrective Measures: When the deviations exceed the acceptable limits, the management is required to take corrective action. This is the final stage of control that aims to correct the deficiencies of the organization so that errors do not recur. For example, if the production target was not duly met, appropriate corrective actions such as training workers or updating machinery to work, etc., may be taken.

  1. Explain the techniques of managerial control.

Ans: Techniques used for managerial control can be divided into two broad categories, such as traditional techniques and modern techniques.Traditional techniques: Techniques that have been used for a long time by managers are known as traditional techniques. The following are traditional techniques of managerial control. i. Personal observation: This technique involves personal observation to supervise the work being done by the managers. This enables the manager to gather the right information and also pressures workers to perform well because they are constantly being watched by their supervisor. However, it is a time consuming process and cannot be used where there are many types of tasks.

 

ii. Statistical Reports: Information can be easily presented in the form of graphs, charts and tables in various statistical analyzes such as averages, ratios, percentages, etc. Such presentation facilitates easy comparison of performance with standards.iii. Break-even analysis: This involves the study of the relationship between cost, volume and profits. Break-even point refers to the volume of sales where there is neither profit nor loss. It is determined at the point where the total cost is equal to the total income earned. Through this technique, the manager can estimate the costs and benefits to the organization at different levels and, thus, find the level where the profit can be maximized. iv. Budget control:Budget control is a technique for planning future operations in the form of budgets. Here, itative budgeting refers to a quantitative or qualitative statement that presents the objectives to be achieved in a given time. These budgets are used as standards to measure actual performance. It also introduces the time bound policies used to achieve the objectives. It also facilitates management by focusing on activities that deviate significantly from the set budget. However, to ensure the effectiveness of the technique, projections about the future must be as accurate as possible. In addition, the budget needs to be flexible so as to adapt to changes in the business environment. Modern Technology: As the name itself suggests, modern technologies are modern and recent. They are based on the new thinking of managers and provide fresh ideas for better managerial control. The following highlights modern techniques of controlling.i. return on investment:Return on investment refers to the profit or profit earned in relation to the investment made. It is a useful technique in measuring whether invested capital is being used effectively and if these investments are generating a reasonable amount of returns. Managers can opt for this technique when comparing the performance of different departments or divisions or when comparing current actions in relation to the performance of past tasks.ii. Ratio analysis: This technique involves calculating various ratios to analyze financial statements. These ratios are then used as a tool for effective managerial control. The most commonly used ratios to control are.(A) liquidity ratio to determine the short-term solvency of the business.(B) Solvency ratio, to determine the long-term solvency of a business.(C) profitability ratio, to determine the profitability positions of a business.(D) Turnover ratio to determine efficiency of activities based on resource utilization.iii. Accountability Accounting: Under this system, various divisions of the organization are established as responsibility centers. The head of each center is responsible for the goals and duties about its center. Some of the following can become responsibility centers.(A) The cost center is responsible for the costs incurred by the organization.(B) Revenue Center responsible for revenue generated from sales or marketing activities.(C) Profit center, responsible for the profits generated by looking at costs and revenue.(d) Investment center, it takes into account the investment made as assets.iv. Management Audit: It refers to a systematic approach to analyze and evaluate the overall efficiency of management of a company.It is to review management’s efficiency and effectiveness to identify deficiencies in overall performance. It serves as an important control system by continuously monitoring the work activities of managers.v. PERT and CPM: Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are techniques that are based on network analysis. It involves dividing the entire project into various activities and then setting a timeline and cost estimate for each activity and for the entire project. Since these techniques work with scheduling and resource allocation, they enable effective execution of projects. Such techniques are commonly used in shipbuilding, construction projects etc.vi. Management Information System: MIS is a computer-based control technique that provides timely data and information to managers for the purpose of making effective decisions. It processes the organization’s vast data and provides useful information to managers. MIS also ensures cost effectiveness in information management as it facilitates the collection and dissemination of information at various levels.The above traditional and modern techniques can be used by managers for effective and efficient control of the organization.

  1. Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

Ans: Control is an important and essential function of management. The aim is to manage managerial functions by setting standards and identifying deviations of actual performance as opposed to set standards. This ensures optimum utilization of resources while taking corrective measures for deviations. The following are factors that highlight the importance of control.

 

(i) Achieving organizational goals: The objective of accomplishing organizational goals is to control by pointing out deficiencies and corrective actions. This set helps to move in the right direction for the attainment of organizational objectives.(ii) Evaluation of standards: Control helps in identifying the accuracy of standards adopted by management. A good control system enables the manager to check whether the standards set are accurate and feasible. It also helps the organization to review and revise the standards according to the changing business environment. (iii) Optimal use of resources: A continuous control and monitoring helps in efficient and optimum utilization of resources. As each work is done according to the set standard, the wastage of resources is reduced.(iv) Employee Motivation: By exercising effective control, employees are well aware of what is expected of them and the standards against which their performance will be assessed. This motivates them to better achieve the set goals.(v) Order and discipline: Efficient control helps in creating an atmosphere of order and discipline in the organization. As employees are aware of the fact that they are constantly being watched, dishonesty and inefficiency in behavior is minimal. (vi) Promote coordination:Pre-defined standards provide a foundation for better coordination within various activities. As departments are made aware of their duties and functions, control promotes coordination among them. Ensuring that organizational objectives are met while providing direction unity. Therefore, control is an important task performed by all managers.However, the control has some limitations. The following points highlight the problems facing the organization while implementing an effective control system. (i) Complexity when setting standards: It is important to set standards in quantitative terms as well as qualitative terms for better control. However, control becomes less effective when standards are defined in qualitative terms. Evaluating the performance of qualitative standards and comparing actual work with standards is a complex task. Thus, it can cause a problem in the controlling process. (ii) External Factors: The business environment varies and the organization has little control over such external factors. These factors can impede effective control. Such factors can be in the form of changes in government policies, environmental changes, competition etc. (iii) Resistance of employees: Control can be resisted when employees go against their comfort zone and independence. For example, if managers set a defined quantity as standard for production and if workers consider it unrealistic, they may go on strike.(iv) Costly process: Effective control is a costly affair in terms of time, money and effort. For example, installing CCTV involves a very high cost. Thus, it may not be possible for a small organization to set up such a system. Thus, managers must ensure that the costs incurred in operating such control systems do not outweigh the benefits derived from it.

  1. Discuss the relationship between planning and controlling.

Ans: Planning and control management are closely related tasks. On the one hand, planning refers to the psychological process of thinking and making decisions about what is to be done and how to be done. That is, planning decides the objectives to be achieved and the action to be taken thereafter. Controlling, on the other hand, refers to the process of managing and evaluating actions taken in accordance with standards and taking corrective measures if any deficiencies occur. These standards that form the basis of control are provided by the plan. The various objectives and policies formulated under planning serve as standards against which actual performance is evaluated. It is meaningless to control without planning. If there are no standards and no objectives, then there is nothing to control.

 

That is, if managers do not know what the ultimate objective is, they have no standard against which they can judge current performance and deficiencies. Likewise, planning without control has no meaning. Once the plans are prepared, it becomes necessary to monitor and evaluate whether the performance is in accordance with the desired plans.There is a shortcoming in the task to achieve the planned goals and if corrective action needs to be taken, control is expected to measure whether the plan is being implemented properly. If there is no control, the plan cannot be carried out. There is no use of planning without control. Thus, it can be said that both planning and control complement each other.The two concepts of planning and control are interlinked because they are forward-looking as well as back-looking. Although it is often said that planning is looking forward and control is lagging behind, however, the statement is only partially true. Although planning is a future concept that deals with planning in advance and setting standards, it is also based on past experiences and actions initiated in the control function. Thus, the plan, besides looking forward, is looking backward as well. Similarly, although control is based on past actions and is concerned with comparing current tasks with pre-determined standards, it also focuses on taking corrective actions to improve management’s future performance. Thus, in addition to the rear view, the control also looks forward.Therefore, while on the one hand planning is a prerequisite for control, on the other hand, control without planning is incomplete. Both are indivisible functions that support each other for the attainment of the goals of the organization.

 

 

Question 4 : Discuss the relationship between planning and controlling.

 

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