MEFA 2 Marks Questions and Answers
MEFA
2 Marks Questions and Answers
1) Define managerial economics?
a)
The integration of economic theory with business practice for the purpose of
facilitating decision making and
forward planning by management (Spencer)
The managerial economics is the application of economic theory and
methodology to business administration practices (Brigham and Pappas)
2) What are the main areas of managerial economics?
a)
The main areas of applications in managerial economics include demand decision,
input output decision, price output decision, profit related decision,
investment decision and economic forecasting and forward planning
3) What is the meaning of micro and macro economics?
a)
Micro economics is the study of an individual, a firm or an industry. it is
also called theory of firm or price theory ,Macro economics is the study of
aggregates of individuals or firms. It is the important tool for national
income analysis, balance of payments
4) What is demand?
a)Every
want supported by the willingness and ability to buy constitutes demand for a
particular product or service .in other words ,if I want a car and I cannot pay
for it .there is no demand for the car from my side .
Demand
conditions are
*desire to buy
*Willingness to pay
*Ability to pay
5) Define law of demand and its exceptions?
a) The law of demand states: other things
remaining the same ,the amount of quantity demanded rises with every fall in
the price
Exceptions: necessities, Giffens’ paradox
6) Define demand function and write mathematical
formula of demand function?
a)
Demand function is a function which describes a relationship between one
variable and its determinants
Mathematical formula
Qd=f(P,I,T,PR,EP,EI,SP,Dc,A,O)
7) Define elasticity of demand?
a)The
term elasticity is define as the rate of responsiveness in the demand of a
commodity for a given change in price or any other determinants of demand .in
other words ,it explains the extent of change in quantity demanded because of a
given change in the other determining factors
8) Explain price elasticity of demand?
a)price
elasticity of demand refers to the ratio of proportionate change in quantity
demanded for product X to the
proportionate change in the price of X .price demanded for a particular product
may be elastic (Edp.1) or inelastic(Edp,1)
9) Explain income elasticity of demand?
a)
Income elasticity of demand refers to the ratio of proportionate change in
quantity demanded for product x to the proportionate change in the income of
the consumer, income demand for a particular product may be elastic (Edi>1)
or inelastic (Edi<1)
10) What is the need of demand forecasting?
a)
Forecasting helps to assess the likely demand for products and services and to
plan production accordingly. Demand forecasting is helpful not only at the firm
level but also at national level.
11) what is the meaning of test marketing?
a)
Test marketing means releasing the product on a test basis in a well choosen,
limited but representative market. Based on the result of the test marketing,
the manufacturer can assess the rate of success for his product.
12) Explain controlled experiment method?
a)
Controlled experiments, as the name itself suggests, the company can
experiments different homogeneous markets releasing its products with different
types of appeal such as different prices, packing, models and so on
13)what is the meaning of normative statement ?
a)
: A normative statement usually includes or implies the words ‘ought’ or
‘should’. They reflect people’s moral attitudes and are expressions of what a
team of people ought to do
14)Define law of demand
a)
Law of demand shows the relation between price and quantity demanded of a
commodity in the market. In the words of Marshall, “the amount demand increases
with a fall in price and diminishes with a rise in price”.
15) Define
demand forecasting ?
a)
The information about the future is essential for both new firms and those
planning to expand the scale of their production. Demand forecasting refers to
an estimate of future demand for the product.
16) Explain
about short term demand forecasting ?
a)
Short-term demand forecasting is limited to short periods, usually for one
year. It relates to policies regarding sales, purchase, price and finances. It
refers to existing production capacity of the firm.
17) Explain
about short term demand forecasting ?
a)
In long-term forecasting, the businessmen should now about the long-term demand
for the product. Planning of a new plant or expansion of an existing unit
depends on long-term demand
18) Define survey method ?
a)
Under this method, information about the desires of the consumer and opinion of
exports are collected by interviewing them
19) Define statistical methods ?
A)
Statistical method is used for long run forecasting. In this method,
statistical and mathematical techniques are used to forecast demand. This
method relies on post data.
20) Define cross elasticity of demand ?
a)
A change in the price of one commodity leads to a change in the quantity demanded
of another commodity. This is called a cross elasticity of demand. The formula
for cross elasticity of demand is:
UNIT..III
1) Define market?
a)
Market is defined as a place or point at which buyers and sellers negotiate
their exchange of well-defined product or service
2) What is the meaning of perfect competition and
perfect market?
a)
A market structure in which all firms in an industry are price takers and in
which there is freedom of entry into and exit from the industry is called
perfect competition. The market with perfect competition conditions is known as
perfect market.
3) Explain about price skimming method?
a)
Skimming pricing refers to the practice where the products are offered at the
highest possible price, which only the creamy layer of the customers can
afford. Once the demand from that segment starts fading, then the price will be
slowly reduced to make product available to the next segment of the creamy
layer. this method is more prevalent in pricing new products and services.
4) Explain about price penetration method?
a)
Penetration pricing where the products are priced so low to start with, perhaps
to familiarize the products, and as the market picks up, the price also is
slowly raised
5) Define monopolistic competition?
a)
Monopolistic competition is said to exit when there are many firms and each one
produces such goods and services that are close substitutes to each other. They
are similar but not identical.
6) Define sole trader?
a)
The sole trader is the simplest, oldest and natural forms of business
organization. It is also called sole proprietorship. Sole means one, ‘sole
trader’ implies that there is only one trader who is the owner of the company
7) What is the meaning of partnership deed?
a)
The written agreement among the partners is called the partnership deed. It
contains the terms and conditions governing the working of partnership
8) What is the meaning of privatization?
a)
It means inducting private ownership in state owned public enterprises with a
strategy to reduce the role of government in business.
9) What is the meaning of globalization?
a)
Globalization means integrating the economy of a country with the world economy
with a view to eliminating supply bottlenecks, improving investment climate,
providing a wide choice of quality goods and services to the ultimate
consumers.
10) What is the meaning of Liberalisation?
a) Liberalisation in
economics means minimising government restrictions and regulations in an
economy in return of higher involvement of private organisation. In short,
liberalisation means the removal of restrictions in order to promote economic
development.
11) What are documents required to formation of
Joint Stock Company?
a Memorandum
of association, articles of association, prospectus
12)
Define Governament Company?
a) Any company in which not less than 51
percent of the paid up share capital is held by the central government or by
any state government or partly by central government and partly by one or more
of the state governments.
13) Define monopoly?
a) The word monopoly is made up of two
syllables, Mono and poly. Mono means single while poly implies selling. Thus
monopoly is a form of market organization in which there is only one seller of
the commodity
14) Define oligopoly market?
a)
The term oligopoly is derived from two Greek words, oligos meaning a few, and
pollen meaning to sell. Oligopoly is the form of imperfect competition where there
are a few firms in the market, producing either a homogeneous product or
producing products, which are close but not perfect substitute of each other.
15)
Define partnership act?
A) Indian Partnership Act, 1932 defines partnership as the relationship between
two or more persons who agree to share the profits of the business carried on
by all or any one of them acting for all.
16)
Define company?
A)Lord justice Lindley explained the concept of the joint stock company from of
organization as ‘an association of many persons who contribute money or money’s
worth to a common stock and employ it for a common purpose.
17) Explain about departmental under tacking?
a)
This is the earliest from of public enterprise. Under this form, the affairs of
the public enterprise are carried out under the overall control of one of the
departments of the government. The government department appoints a managing
director (normally a civil servant) for the departmental undertaking
18) Explain about public corporation?
a) A
public corporation is defined as a ‘body corporate create by an Act of
Parliament or Legislature and notified by the name in the official gazette of
the central or state government. It is a corporate entity having perpetual
succession, and common seal with power to acquire, hold, dispose off property,
sue and be sued by its name”.
19) Define proprietary ship of business?
a)
The sole trader is the simplest, oldest and natural form of business
organization. It is also called sole proprietorship. ‘Sole’ means one. ‘Sole
trader’ implies that there is only one trader who is the owner of the business.
20) Explain memorandum of association ?
a)
The Memorandum of Association is also called the charter of the company. It
outlines the relations of the company with the outsiders. If furnishes all its
details in six clause such as (ii) Name clause (II) situation clause (iii)
objects clause (iv) Capital clause and (vi) subscription clause duly executed
by its subscribers.
UNIT..IV
1. Define
accounting?
A). Accounting
also refers to the process of summarizing, analyzing and reporting the business
transactions
According to American Accounting Association, “accounting is the process of
identifying, measuring, and communicating economic information to permit informed
judgments and decisions by the users of the information”.
2. What are the branches of accounting?
A).
there are various branches of accounting system these are,
1. Financial accounting 2. Cost accounting
3. Management accounting
3 .Define accounting cycle?
A).
accounting cycle covers all the important stages in accounting. It includes the
process journal, ledger, trial balance and final accounts.
4. what is journal?
A).
journal is a French word come from “jour” it means ‘a day’. Journal is a
primary entity books of accounting in which transactions are record in
chronological order, the moment they take place in business. Recording entries
in journal is called journalizing.
5. What is ledger?
A).
Ledger is a book that contains several accounts. The process of preparations of
accounts from the journal in to ledger
is called posting in the ledger. The example of ledger accounts are sales a/c,
cash a/c etc.
Format
of ledger
Dr
ACCOUNT
Cr
date
|
particulars
|
L.F
no
|
amount
|
Date
|
particulars
|
L.F.NO
|
amount
|
1/02/2012
|
To
cash a/c
|
xxxxx
|
21/2/2012
|
By
bank a/c
|
Xxxxx
|
6. What is meant by trial balance?
A).
Trial balance is a statement containing debit and credit balances of various
accounts taken out from ledger books as on a particular date. A trial balance
must agree on that date.
7. What is capital expenditure?
A).
Capital expenditure refers to that expenditure incurred to acquire a fixed
asset used continuously in the business for the purpose of earning revenue. Any
amount spent to increase the earning capacity of the asset is also called
capital expenditure .
For
example: cost of plant and machinery, buildings etc.
8. What is deferred revenue expenditure?
A). A revenue expenditure is a cost that is
charged to expense as
soon as the cost is incurred. By doing so, a business is using the matching
principle to link the expense incurred
to revenues generated
in the same reporting period. This yields the most accurate income statement
results. ... Generating revenue
9. what is contra entry?
A).
Contra entry means opposite, it implies that for an entry in cash column of
debit side, there is an entry in the opposite side in the bank column.
Example::
cash is deposited into bank , cash is drawn from bank for office use.
10. what is journal
proper?
A).
Journal
proper is book of
original entry (simple journal)
in which miscellaneous credit transactions which do not fit in any other books
are recorded. It is also called miscellaneous journal. The form and procedure for maintaining this journal is the same that of
simple journal.
For example::
opening entries , closing entries,
adjustment entries, purchase / sale of assets on credit basis etc.
11. What is ratio analysis?
A).
Ratio analysis is the process of determining and interpreting numerical relationship
based on financial statements . by computing ratios, it is easy to understand
the financial position of the firm . it is used to focus on financial issues
such as liquidity, profitability and solvency of a given firm.
12. What is EPS?
A).
EPS refers earnings for share is relationship between net profits and the
number of shares outstanding at the end of the given period.
Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution.
13. What is the formula for current ratio?
A).
Current ratio is relationship between the current assets and current
liabilities it is standard ratio is 2:1. The following formula is used for
computing current ratio..
Current ratio= current
assets/current liabilities
14) Define ratio analysis?
a)
Ratio Analysis stands for the process of determining and presenting the relationship
of items and groups of items in the financial statements. It is an important
technique of financial analysis. It is a way by which financial stability and
health of a concern can be judged
15) Define profitability ratios
A)
Profitability ratios: These ratios are calculated to understand the profit
positions of the business. These ratios measure the profit earning capacity of
an enterprise.
Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings relative to its revenue, operating costs, balance sheet assets, and shareholders' equity over time, using data from a specific point in time
Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings relative to its revenue, operating costs, balance sheet assets, and shareholders' equity over time, using data from a specific point in time
16) Write formula of inventory turnover ratio ?
a)
1.
Stock turnover ratio =
Inventory Turnover Ratio = (Cost of Goods Sold)/(Average Inventory)
For example:
Republican Manufacturing Co. has a cost of goods sold of $5M for the current year. The company’s cost of beginning inventory was $600,000 and the cost of ending inventory was $400,000. Given the inventory balances, the average cost of inventory during the year is calculated at $500,000. As a result, inventory turnover is rated at 10 times a year.
17) Define liquidity ratio?
A)
Liquidity refers to ability of organization to meet its current obligation.
These ratios are used to measure the financial status of an organization. These
ratios help to the management to make the decisions about the maintained level
of current assets & current libraries of the business.
18) Define solvency or leverage ratios
A)
Solvency refers to the ability of a business to honour long item obligations
like interest and installments associated with long term debts. Solvency ratios
indicate long term stability of an enterprise. These ratios are used to
understand the yield rate if the organisation.
19) Formula of debt equity ratio ?
a)
1.
Debt – equity ratio= =
1.
Debt – equity ratio= =
20) Write formula of current ratio
a)
Current ratio =
Note:
The ideal ratio is 2:1
UNIT.V
1. what is capital?
A).capital
refers to the total amount of finances the business requires to meet its
business operations both the short run and long-run. Capital is divided into
two major types they are
A )fixed capital b) working capital
2. Define fixed capital?
A).fixed
capital is permanent nature, it is used in the business for acquiring of fixed
assets like land and buildings, machinery etc .promotions its sales and expanding
operations
3. What is working capital?
A).working
capital is the part of total business capital, it is used in the business for
day-to-day expenses like wages, raw material purchases etc.
It is the excess of current assets over and
above current liabilities. The following formula is used to determine working
capital.
WORKING CAPITAL = CURRENT ASSETS- CURRENT
LIABILITIES
4. Defines current assets?
A)
. Current assets are tangible, those assets are used in short period in the
business or those are convertible in to
cash easily within one accounting year.
Example: cash, stock, sundry debtors,
bills receivables etc.
5. What is share?
A).
Share is a part of total company’s capital, total capital is divided into parts
is called share. Shares are divided into different types these are
1).
Equity shares & 2) preference
shares.
6. Define debentures?
A).
Debentures are the certificates acknowledging the loan taken by the company,
they carry fixed rate of interest rate.
The debentures are different types..
1). Convertible
and non-convertible debentures.
2). Secured
and unsecured debentures.
3).
Redeemable and irredeemable debentures.
7. What is capital budgeting?
A).capital
budgeting is the process of evaluating the relative worth of long-term
investment proposals based on their profitability. The capital budgeting
proposals are replacement of assets , expansions, research & developments.
8. What ate the capital budgeting methods?
A).
There are two methods
I). Traditional methods.
A).pay-back period method
B).account-rate of return method
II). Discounted cash flow methods.
A). Net present value method
B). Internal rate of return method
C). Profitability index method.
9. What is discounting?
A).
Discounting is the process of determining the present value
of a payment or a stream of payments that is to be received in the future.
Given the time value of money, a dollar is worth more today than it would be
worth tomorrow. Discounting is
the primary factor used in pricing a stream of tomorrow's cash flows.
10. What is PV factor?
A).
The present value factor is also called discounting factor. It is used to
discount the future cash flows (both in-flows & out-flows) to their present
value. The present value of re.1 over a period of time for different
discounting factors used table is pv factor table.
11. What is capital rationing?
A).where
the given projects are equally viable and all of these are necessary for the
survival of the company. But the company does not have enough resources to
finance all these projects. Based on the priorities, the company has to
allocate funds for each of the projects
12. What are the cash inflows?
A).
Cash Inflows refers to cash receipts. It does not refer to future incomes. It
may be calculated for a particular project or asset or for the whole business
for one year or series of years.
13. What is trade credit?
a)
Credit is a common source of short-term finance available to all companies. It
refers to the amount payable to the suppliers of raw materials, goods etc.
After an agreed period, which is generally less than a year?
14) What is payback period?
A)
It is the most popular and widely recognized traditional method of evaluating
the investment proposals. It can be defined, as ‘the number of years required
to recover the original cash out lay invested in a project
15) Write formula of accounting rate of return
a)
According to ‘Soloman’, accounting rate of return on an investment can be
calculated as the ratio of accounting net income to the initial investment,
i.e.,
Average
net income after taxes
ARR= ----]--------------------------------- X 100
Average Investment
16) How to
caliculate net present value ?
a)
NPV is the difference between the present value of cash inflows of a project
and the initial cost of the project.
17) How to caliculate internal rate of return ?
a)
The IRR for an investment proposal is that discount rate which equates the
present value of cash inflows with the present value of cash out flows of an
investment. The IRR is also known as cutoff or handle rate.
P1 - Q
IRR = L+
--------- X D
P1 –P2
18) How to
caliculate profitability index?
a) Present Value of
Future Cash Inflow
Probability index = ----------------------------------------
Investment
19) Explain the process of capital budgeting ?
a)
Capital budgeting is the process of making investment decision in long-term
assets or courses of action. Capital expenditure incurred today is expected to
bring its benefits over a period of time. These expenditures are related to the
acquisition & improvement of fixes assets.
20) What are the steps involved in capital budgeting process?
Six Steps to
Capital Budgeting Process
1 – To Identify
Investment Opportunities
2 – Gathering
of the Investment Proposals
3 – Decision
Making Process in Capital Budgeting
4 – Capital
Budget Preparations and Appropriations
5 –
Implementation
6 – Review of Performance
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