NCERT Solutions - Controlling Commerce Notes | EduRev

Business Studies (BST) Class 12

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Multiple Choice Questions

Question 1. An efficient control system helps to
(a) accomplishes organisational objectives
(b) boosts employee morals
(c) judges accuracy of standards
(d) All of the above
Answer (d) Efficient control system helps to accomplish objectives, boosts employee morals, judges accuracy of standards, analyse deviations.


Question 2. Controlling function of an organisation is
(a) forward looking
(b) back moral looking
(c) forward as well as backward looking
(d) None of the above
Answer (c) Controlling is forward looking because it does not end only by comparing past performance with standards. Controlling is backward looking because It postmortems all past activities to set future standards.Thus, controlling is both forward as well as backward looking.


Question 3. Management audit is a technique to keep a check on the performance of
(a) company
(b) management of the company
(c) shareholders
(d) customers
Answer (b) The purpose of management audit is to review the efficiency and
 effectiveness of management of the company.


Question 4. Budgetary control requires the preparation of
(a) training schedule
(b) budgets
(c) network diagram
(d) responsibility centres
Answer (b) Budgetary control is a technique in which all operations are planned in advance in the form of budgets.

Question 5. Which of the following is not applicable to responsibility accounting?
(a) Investment centre
(b) Accounting centre
(c) Profit centre
(d) Cost centre
Answer (b) Accounting centre is not applicable to responsibility accounting.


Short Answer Type Questions

Question 1. Explain the meaning of controlling.
 Answer
Controlling means ensuring that activities In an organisation are performed as
per the plans Controlling also ensures that an organisations resources are being used
effectively and efficiently for the achievement of desired goals Controlling is, thus a goal
oriented function. Controlling is a very important managerial function. Because of
controlling manager is able to compare actual performance with the planned
performance In order to control the activities at all levels manager needs to perform
controlling function.


Question 2. Planning is looking ahead and controlling is looking back comment.
 Answer
Planning and controlling are inseparable Planning is the primary function of
every organisation it is the thinking process. which means looking ahead or making
plans that how desired goal IS achieved in future thus It is called a formed look'”g
function on the other hand controlling IS a systematic function which measures the
actual performance with the planned performance. It compared and analysed the whole
process of an organisation and take correcting actions. Thus, it is a backward looking
function but the statement “Planning is looking ahead and controlling is looking back” IS
partially correct because it should be understood that planning is glided by past
experiences and the corrective action initiated by control function which alms to Improve
future performance Thus. planning and controlling are both backward looking as well as
a forward looking functions.


Question 3. ‘An effort to control everything may end up in controlling nothing’. Explain.
 Answer
It’s a well known fact that “Jack of all master of none when we start controlling
everything It results In control mq nothing because It is not possible at one time to
control various activities as this process may neither be economical nor easy Control
thus focus on KRAs (Key Result Areas). It means Instead of controlling all activities,
control where the critical points goes wrong and by which organisation suffers Thus,
KRAs are set as critical points and one should be aware that he has to control what.


Question 4. Write a short note on budgetary control as a technique of managerial control.
 Answer 
Budgetary control s a technique of managerial control In which all operations
are planned and this will help us in knowing how much we have to spend in order to
achieve the future result. It compared the actual result with budgetary standards. This
comparison reveals the necessary actions to be taken so that the organisational
objectives are accomplished. Budgeting offers the following advantages
1. Budgeting focuses on specific and time bound targets.
2. Budgeting standards is a source of motivation to the employees they set the
against which their performance will be appraised and thus, enables them to
perform better
3. Budgeting helps in optimum utilisation of resources by allocating them according
to the requirements of different departments.
4. It helps the management in setting standards.


Question 5. Explain how management audit serves as an effective technique of controlling.
 Answer
Management audit is a technique which helps measuring the efficiency and
effectiveness of management. It is a comprehensive and constructive review Thus, we
can say it is defined as the review of the functioning performance and to improve Its
efficiency In future penod hence It serves as an effective technique of control mq
following points are proving the same
1. It helps to locate present and potential deficiencies in the performance of
management functions.
2. It helps to Improve the control system of an organisation by continuously
monitoring the performance of management.
3. It ensures updating of eXisting managerial polic.es and strategies In the light of
environmental changes This results in efficient controlling of management.


Long Answer Type Questions

Question 1. Explain the various steps involved in the process of control.
 Answer 
Controlling is a systematic process involving following steps

(i) Setting Performance Standards The first step in the controlling process is setting
up of performance standards. Standards are the criteria against which actual
performance would be measured. Standards can be set In both quantitative as well as
qualitative terms
Some of the qualitative standards are cost to be Incurred, product units to be produced,
time to be spent in performing a task etc. Improving goodwill and motivation level of
employees are examples of qualitative standards.

(ii) Measurement of Actual Performance Once performance standards are set, the
next step is measurement of actual performance. Performance should be measured in
an objective and reliable manner. Some of the techniques used for measuring the
performance are personal observation. sample checking performance reports etc.

(iii) Comparing Actual Performance with Standards This step involves comparison
of actual performance with the standards. Such comparison will reveal the deviation
between actual and desired results. Comparison becomes easier when standards are
set in quantitative terms. For instance, performance of a worker In terms of units
produced in a week can be easily measured against the standard output for the week.

(iv) Analysing Deviations Some deviations in performance can be expected in all
activities. It is therefore, important to determine the acceptable range of deviations.
Also, deviations in key areas of business need to be attended more urgently as
compared to deviations in certain insignificant areas. Critical point control and
management by exception should be used by a manager in this regard.

(v) Taking Corrective Action The final step in the controlling process is taking
corrective action. No corrective action is required when the deviations are within
acceptable limits. However, when the deviations go beyond the acceptable range.
especially in the important areas. It demands immediate managerial attention so that
deviations do not occur again and standards are accomplished. Incase the deviations
cannot be corrected through managerial action. the standards may have to be revised.


Question 2. Explain the techniques of managerial control.
 Answer 
The various techniques of managerial control may be classified into broad
categories

(i) Traditional Techniques Those techniques which have been used by the companies
for a long time now are traditional techniques. However., these have not become
obsolete and are still being used by
companies.

(a) Personal Observation Personal observation enables the manager to collect first
hand information. It also creates a psychological pressure on the employees to perform
well as they are aware that they are being observed personally in their job.

(b) Statistical Reports Statistical analysis in the form of averages, percentages, ratios,
correlation etc. Present useful information to the managers regarding performance of
the organisation in various areas. Such information when presented in the form
of charts. graphs. tables etc enables the managers to read them more easily and allow
a comparison to be made with performance in previous periods and also with the
benchmarks.

(c) Break-even Analysis It is a technique used by managers to study the relationship
between costs, volume and profits. It determines the probable profits and losses at
different levels of activity. The sales volume at which there is no profit. no loss is known
as break-even point. It is a useful technique for the managers as it helps in estimating
profits at different levels of activities.

(d) Budgetary Control It is a technique of managerial control in which all operations
are planned in advance in the form of budgets and actual results are compared with
budgetary standards. This comparison reveals the necessary actions to be taken so that
organisational goals are accomplished. A budget is a quantitative statement for a
definite future period of time for the purpose of obtaining a given objective. It is also a
statement which reflects the policy of that particular period. It will contain figures of
forecasts both in terms of time and quantities.

(ii) Modern Techniques Modern techniques of controlling are those which are of recent origin and are comparatively new in management literature. They provide a new
thinking on the ways In which various aspects of an organisation can be controlled

(a) Return on Investment Return on Investment (ROI) is a useful technique which
provides the basic yardstick for measuring whether or not invested capital has been
used effectively for generating reasonable amount of return. It can be calculated
as under

NCERT Solutions - Controlling Commerce Notes | EduRev
ROI provides top management an effective means of control for measuring and
comparing performance of different departments. It also permits departmental
managers to find out the problem which affects ROI in an adverse manner.

(b) Ratio Analysis It refers to analysis of financial statements through computation of
ratios. The most commonly used ratios are

• Ratios Liquidity ratios are calculated to determinedly short term solvency of
business.

Ratios Ratios which are calculated to determine the long term solvency of
business are known as Solvency ratios.

Ratios These ratios are calculated to analyse the profitability position of a
business.

Ratios They are calculated to determine the efficiency of operations based on
effective utilisation of resources.

(iii) Responsibility Accounting Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as
‘responsibility centres’. The head of the centre is responsible for achieving the target set
for his centre. Responsibility centres may be of the following types

(a) Cost Centre A cost or expense centre Is a segment of an organisation n which
managers are held responsible for the cost Incurred in the centre but not for the
revenues e.g., production department

(b) Revenue Centre A revenue centre is held responsible for generating revenue e.g..
marketing department.

(c) Profit Centre A profit centre is responsible for both cost and revenue e.g., repair
and maintenance department

(d) Investment Centre An investment centre is responsible not only for profits but also for investments made in the centre In the form of assets.

(iv) Management Audit Management audit refers to systematic appraisal of the overall performance of the management of an organisation. The purpose is to review the
efficiency and effectiveness of management and to Improve its performance in future
periods. It is helpful in identifying the deficiencies in the performance of management
functions The main advantages are
(a) Helps to locate weaknesses.
(b) It helps to improve control system.
(c) Ensures updating of existing managerial policies and strategies in the light of
environmental changes.

(v) PERT and CPM Programme evaluation and review technique and critical path
method are important network techniques useful n planning and controlling These
techniques are especially useful in planning, scheduling and Implementing time bound
projects Involving performance of a variety of complex, diverse and inter-related
activities These techniques deal with time scheduling and resource allocation for these
activities and aims at effective execution of projects within given lime schedule and
structure of costs.

(vi) Management Information System MIS is a computer based Information system that provides information and support for effective managerial decision-making A
decision maker requires up-to-date accurate and timely information. MIS provides the
required information to the managers by systematically processing a massive data
generated In an organisation Thus, MIS IS an important communication tool for
managers


Question 3. Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?
 Answer 
Control is an indispensable function of management Without control the best of plans can go away. A good control system helps an organisation in the following way

(i) Accomplishing Organisational Goals The controlling function measures progress towards the organisational goals and brings to light the deviations If any and indicates
corrective action. It thus. gUides the organisation and keeps it on the right track so that
organisational goals might be achieved

(ii) Judging Accuracy of Standards A good control system enables management to
verify whether the standards set are accurate and objective an efficient control system
keeps a careful check on the changes taking place in the organisation and in the
environment and helps to review and revise the standards in light of such changes.

(iii) Making Efficient Use of Resources By exercising control a manager seeks to
reduce wastage and spoilage of resources. Each activity is performed in accordance
with pre-determined standards and norms. This ensures that resources are used in the
most efficient and effective manner.

(iv) Improving Employee Motivation A good control system ensures that employees
know well in advance what they are expected to do and what are the standards of
performance on the basis of which they will be appraised. It, thus motivates them and
helps them to give better performance

(v) Ensuring Order and Discipline Controlling creates an atmosphere of order and
discipline In the organisation It helps to minimise dishonest behaviour on the part of the
employees by keeping a close check on their activities

(vi) Facilitating Co-ordination in Action Controlling provides direction to ai’ activities and efforts for achieving organisational goals Each department implemented employee is governed by pre-determined standards which are well co-ordination with one another. This ensures that overall organisational objectives are accomplished.

Although controlling is an important function of management. It suffers from the
following limitations also

(i) Difficulty in Setting Quantitative Standards Control system loses some of its
effectiveness when standards cannot be defined in quantitative terms. This makes
measurement of performance and their comparison with standards a difficult task.
Employee morale, job satisfaction and human behaviour are such areas where this
problem might arise.

(ii) Little Control on External Factors Generally an enterprise cannot control external factors such as government policies, technological changes competition etc.

(iii) Resistance from Employees Control is offer resisted by employees.
They see it as a restriction on their freedom. For instance, employees might object
when they are kept under a strict watch with the help of Closed Circuit Televisions
(CCTVs).

(iv) Costly Affair Control is a costly affair as It Involves a lot of expenditure. time and
effort. A small enterprise cannot afford to install an expensive control system. It cannot
justify the expenses involved. Managers must ensure that the costs of installing and
operating a control system should not exceed the benefits derived from it.


Question 4. Discuss the relationship between planning and controlling.
 Answer 
Planning and controlling are inseparable, they are twins of management. A
system of control pre-supposes the existence of certain standards. These standards of
performance which serve as the basis of controlling are provided by planning. Once a
plan becomes operational controlling is necessary to monitor the progress, measure it,
discover deviations and initiate corrective measures to ensure that events conform to
plans.
Planning is clearly a pre-requisite for controlling. Controlling cannot be accomplished
with planning. With planning there is no pre-determined understanding of the desired
performance, planning seeks consistent, integrated and articulated programmes while
controlling seeks to compel events to conform to plans.

Application Type Questions

Following are some behaviours that you and others might engage in on the job. For each item, choose the behaviour that management must keep a check to ensure an efficient control system.

1. Biased performance appraisals.
2. Using company’s supplies for personal use.
3. Asking a person to violate company’s rules.
4. Calling office to take a day off when one is sick.
5. Overlooking boss’s error to prove loyalty.
6. Claiming credit for someone else’s mom.
7. Reporting a violation on noticing it.
8. Falsifying quality reports.
9. Taking longer than necessary to do the job.
10. Setting standards in consultation with workers.

You are also required to suggest the management how the undesirable behaviour can be controlled.

Answers:
1. To avoid biased appraisal, performance appraisal should be taken by a committee
of experts.
2. The statement are not so expensive, so it can be ignored.
3. Strict and Immediate disciplinary action should be taken.
4. Mass bunking should not be allowed.
5. Secret suggestion box can be used to collect feedback about the boss for
appraisal.
6. Performance records of employees to be maintained.
7. If minor can be over looked
8. Strict quality control techniques should be used.
9. Time and motion study should be used to fix standard.
10. The use of scientific techniques can help in fixing the most feasible and optimum
standards.


Case Problem

A company M limited is manufacturing mobile phones both for domestic Indian market
as well as for export. It had enjoyed a substantial market share and also had a loyal
customer following. But lately it has been experiencing problems because its targets
have not been met with regard to sales and customer satisfaction. Also mobile market in
India has grown tremendously and new players have come with better technology and
pricing. This is causing problems for the company. It is planning to revamp its controlling
system and take other steps necessary to rectify the problems it is facing.
 

Question 1. Identify the benefits the company will define from a good control system.
 Answer
When company starts following a good control on operations. it leads to derive
benefits which are
1. Helps in achieving desired goals.
2. Judging accuracy of operations.
3. Making efficient and effective use of resources.
4. Improving employee morale.
5. Ensuring proper flow of orders and the whole system is in discipline.
6. It facilitates the co-ordination and Improve the performance of every Individual.


Question 2. How can the company relate its planning with control in this line of business to ensure that its plans are actually implemented and targets attained?
Answer 
Company relates Its planning with control in this line of business by
implementing effective control system as this will help in two aspects planning makes
controlling effective and efficient whereas controlling improves future planning because
it is like a postmortem of past activities to find out deviations from the standards and in
order to ensure that its plans are actually implemented and targets are attained they will
take the help from controlling process as it is a systematic process and it leads to
following benefits
 1. Setting Up of Standards In this step. company set some targets against which
the actual performance is measured.
2. Measuring of Performance In this step, company is able to measure the

performance and evaluating that what is actually done by the employees.

3. Compare Performance After evaluating the actual result. company compares the
actual performance with the planned one this helps in knowing that the desired
goal is achieved or not.

4. Analysing Deviations This refers to the difference between actual and desired
performance. It helps in knowing to the company that the deviation is positive or
negative. It needs focus on which part rather than analysing whole.

5. Taking Corrective Measures Final step is to know the type of operation and
trying to remove this deviation and in future it matches with the plans.


Question 3. Give the steps in the control process that the company should follow to remove the problems it is facing.
 Answer
The company should follow these steps in a systematic manner
1. Setting performance standards
2. Measurement of actual performance
3. Comparison of actual performance with standards
4. Analysing deviations
5. Taking corrective actions


Question 4. What techniques of control can the company use?
 Answer 
The company should follow the modern techniques to control the system

(i) ROI (Return on Investment) It is a useful technique of controlling overall
performance of a company. It Indicates how resources are being used. facilitates
balanced use effectively of capital employed. focuses on profits and relates them to
capital Invested.

(ii) Responsibility Accounting Under this technique, organisation is divided into
centres which is responsible for overall growth of various departments. Responsibility
centres in the organisation are
(a) Cost Centre Under this. one can check the production and operational cost.
(b) Revenue Centre Sales or marketing departments come under this, it is responsible
for generating revenue.

(c) Profit Centre Profit = Revenue -Cost. It ensures the actual profit derived from the
business.
(d) Investment Centre This centre ensures the optimum use of assets and it makes use
of return on investment.

(iii) MIS (Management Information System) It is a control technique which provides
information and support for effective managerial decision making. It provide accurate
information to the managers, helps in planning, controlling, provides cost effective
information and many more.

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