Very Short Type Questions - Business Arithmetic, Entrepreneurship, Class 12 | Additional Study Material for Commerce PDF Download

Q1. State any two advantages of Inventory Control. (CBSE 2012, Comptt.) (2 marks)
Ans. The advantages of inventory control are as under :
(i) It ensures adequate supply of materials, stores, spares, etc. There is no shortage of any item at any stage of production.
(ii) It reduces investment in inventories, inventory carrying costs and losses due to obsolescence.

Q2. What is meant by inventory control ? (CBSE 2010, Delhi) (2 marks)
Ans. Inventory control is a process which facilitates the entrepreneur to take important decisions about his production line and material movement.

Q3. What is meant by ‘Re-order Point ? (CBSE 2010, Delhi) (2 marks)
Ans. Re-order point is the point or level at which the new order must be placed so that the inventory is replenished before the stock level reaches zero.

Q4. What are “Carrying Costs”? (2 marks)
Ans. It is defined as the cost of holding and handling materials inside or outside the stores. It is important to examine the inventory level and to maintain optimum balance of inventory.

Q5. Explain the term SKU ? (TBQ) (2 marks)
Ans. Each item in the inventory is to be identified with a unique code which signifies certain aspects of the item. It can be colour, size, weight or any other characteristic that is of importance in its use. The SKU code can be a combination of any of these alpha or numeric characteristic.

Q6. Pareto’s law formed the basis for a technique. Name it. (TBQ) (1 mark)
Ans. ABC analysis.

Q7. Give the formula for reorder point. (1 mark)
Ans. Reorder point = Average daily usage rate × Lead time in days.

Q8. Name the costs involved in calculation of economic order quantity. (2 marks)
Ans.
(i) Ordering costs and
(ii) Carrying cost.

Q9. Give the formula for :
(i) Return on investment (ROI) and
(ii) Return on Equity (ROE).
(2 marks)
Ans.
(i) ROI = Net Profit / Total Capital Invested × 100
(ii) ROE = Net Income × 100 / Equity

Q10. What do you mean by depreciation ? (2 marks)
Ans. Depreciation is the reduction in value of fixed assets due to the normal wear and tear of asset over the passage

of time.

Q11. A company uses 30 units of an item per day and the order lead time is 5 days. What is the re-order point ? (CBSE 2011, Comptt.) (2 marks)
Ans. Reorder point = Usage rate × Lead time Reorder point = 30 × 15 = 450 units

Q12. What do you mean by order lead time ? (1 mark)
Ans. It is an average time that elapses between placing an order and receiving the goods.

Q13. What do you understand by usage rate ? (1 mark)
Ans. It is the average rate at which the inventory is drawn over a period.

Q14. What do you mean by return of investment ? (2 marks)
Ans. ROI is the ratio that reflects the overall profitability of business. It is calculated by comparing the profit earned and capital employed to earn it. It is also known as rate of return or return on capital.

Q15. Calculate ROI from the following information : Net profit before interest and taxes = ` 9,00,000
Capital employed = ` 45,00,000
(2 marks)
Ans.
ROI = Net Profit before interest and taxes × 100 / Capital employed
ROI = ` 9,00,000 × 100 / `45,00,000

= 20%

Q16. What does EBITDA stands for ? (1 mark)
Ans. Earnings before interest, taxes, depreciation and amortization.

Q17. What does high ROE indicate ? (1 mark)
Ans. High ROE indicates more efficient management and utilization of equity shareholders’ fund.

Q18. What is the desirable behaviour of any inventory item ? (1 mark)
Ans. Desirable behaviour of any inventory item is “Availability”. It means that there should never be any stock out.

Q19. If B spends ` 2,00,000 to open a shop and earns a net profit of ` 40,000 in one year, calculate the annual return on investment. (2 marks)
Ans.
ROI = Earning before interest, tax and depreciation ×100 / Total investment

= ` 40,000 × 100 / `2,00,000 = 20%

Q20. What does ROE indicate ? (1 mark)
Ans. ROE (Return on Equity) is a good indicator to know a true measure of how own money is being used.