MANAGERIAL ECONOMICS AND FINANCIAL ANALYSIS (2MARKS) B.TECH MEFA ALL 5 UNITS
MANAGERIAL ECONOMICS AND FINANCIAL ANALYSIS
(2MARKS)
UNIT-I
INTRODUCTION TO
MANAGERIAL ECONOMICS
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:
Proportionate
change in the quantity demand of commodity “X”
Cross elasticity =
-----------------------------------------------------------------------
UNIT-II THEORY OF
PRODUCTION ANS COST ANALYSIS
1) Define production function
and write fomula for production function?
a) Production function is defined as a technical relationship
between a given set of inputs and the possible output from it. It is a function
that defines the maximum amount of output that can be produced with a given set
of output
Q=f(L1,L2,C,O,T)
(LAND, LABOUR, CAPITAL ,ORGANIZATION ,TECHNOLOGY)
2) Meaning of Isoquant?
a) Isoquant refers to the
curve throughout which equal quantity is obtained from several combinationof
inputs underlying it.
3) Meaning of Isocost?
a) Isocost
refers to that cost curve which represents the combination of inputs that will
cost the firm the same amount of money .
4) Explain cobb –douglas production function?
a)
Cobb and douglas formulated a
production function,in the contest of USA,which revealed constant returns to
scale.there were no economies or
diseconomies resulting from large scale production.according to cobb and
douglas
P=bLaC1-a
P=total output
L=the index of
employment of labour in manufacturing
a,a-1 are the
elasticities of production
5) MRTS.
a)Marginal rate of
technical substitution refers to the rate at which one input factor is
substituted with the other to attain a given level of output
MRTS= Change in one input,say,capital
. Change in
another input, say, labour
6) Define cost?
a) Cost is defined as the sacrifice made to acquire some benefit.
cost is the expenditure incurred to produce a particular product or service
7) Explain about BEA point?
A) Break even analysis refers to analysis of the breakeven point.
The BEP is defined as no profit or no loss point. In another words, it points
out how much minimum is to be produced to see the profits.BEP= (TR=TC)
8) What is the meaning of
laws of returns?
a) Laws of returns to scale, refers to the returns enjoyed by the
firm as a result of change in all the inputs. There are three returns
a) Laws of increasing
returns to scale
b) Laws of constant returns
to scale
c) Laws of decreasing
returns to scale
9) Explain about internal
economies of scale?
a) Internal economies refer to the economies in production costs
which accrue to the firm alone when it expands its output. The internal
economies occur as a result of increase in the scale of production.
10) Explain about external
economies of scale?
a) External economies refer to all the firms in the industry,
because of growth of the industry as a whole or because of growth of ancillary
industries. External economies benefit all the firms in the industry as the
industry expands
11) Explain explicit cost and implicit cost?
a) Explicit costs are those expenses that involve
cash payments. These are the actual or business costs that appear in the books
of accounts. These costs include payment of wages and salaries
Implicit costs are the costs of the factor units that
are owned by the employer himself. These costs are not actually incurred but
would have been incurred in the absence of employment of self – owned factors.
12) Explain out of pocket cost and book cost?
a) Out-of
pocket costs also known as explicit costs are those costs that involve current
cash payment. Book costs also called implicit costs do not require current cash
payments. But the book costs are taken into account in determining the level
dividend payable during a period.
13) Explain fixed cost and variable cost
a ) Fixed cost is that cost which remains constant
for a certain level to output. It is not affected by the changes in the volume
of production. But fixed cost per unit decrease, when the production is
increased. Fixed cost includes salaries, Rent, Administrative expenses
depreciations etc.
Variable is that which varies directly with the
variation is output. An increase in total output results in an increase in
total variable costs and decrease in total output results in a proportionate
decline in the total variables costs. The variable cost per unit will be
constant. Ex: Raw materials, labour, direct expenses, etc.
14) write formulas of breakeven point ?
1.
Break Even point (Units) = 
2.
Break Even point (In Rupees) = 
X sales
X sales
15) what is diseconomies of scale?
a) Internal and external diseconomies are the
limits to large-scale production. It is possible that expansion of a firm’s
output may lead to rise in costs and thus result diseconomies instead of
economies.
16) What are the merits of
BEA
a)
- Information provided by the Break Even Chart can be understood more easily then those contained in the profit and Loss Account and the cost statement.
- Break Even Chart discloses the relationship between cost, volume and profit. It reveals how changes in profit. So, it helps management in decision-making.
17) What are
demerits of BEA
a)
- Break-even chart presents only cost volume profits. It ignores other considerations such as capital amount, marketing aspects and effect of government policy etc., which are necessary in decision making.
- It is assumed that sales, total cost and fixed cost can be represented as straight lines. In actual practice, this may not be so.
- It assumes that profit is a function of output. This is not always true. The firm may increase the profit without increasing its output.
18) What is the meaning of contribution ?
a) Contribution
is the difference between sales and variable costs and it contributed towards
fixed costs and profit.
Contribution = Sales –
Variable cost
Contribution = Fixed Cost
+ Profit.
19)
What is margine of safety ?
a)Margin of safety is the excess of sales over
the break even sales. It can be expressed in absolute sales amount or in
percentage. The formula for the margin of safety is
Present sales – Break even sales or 
20) What is angle
of incidence ?
a)This is the angle between sales line and
total cost line at the Break-even point. It indicates the profit earning
capacity of the concern.
UNIT-III
INTRODUCTION TO MARKET
AND NEW ECONOMIC ENVIRON MENT
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
Liberlization?
a) Liberlization is the process of freeing the economy from the
‘licence-permit raj’
11) What are documents
required to formation of Joint Stock Company?
a)Memorandom 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 governament
or by any state government or partly by central governament and partly by one
or more of the state govrnaments.
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 propritory 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 memorondom 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: FINANCIAL ACCOUNTING AND ANALYSIS
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) It refers to that portin of expenditure that
remains euchanged to profit and loss account of a given period.
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) Such transactions which can’t be recorded in
any of the above subsidiary books are recorded in journal proper
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
relation ship 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.
EPS= NETPROFIT AFTER TAXES/NO OF SHARES OUT
STANDING
13. What is
the formula for current ratio?
A) Current ratio is relation ship 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.
16) Write formula of inventory turnover
ratio ?
a)
1. Stock turnover ratio =
Here,
Average stock=
17) Define
liquidity ratio ?
a) Liquidity refers to ability of
organisation to meet its current obligation. These ratios are used to measure
the financial status of an organisation. 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= =
20) Write formula
of current ratio
a) 
Current
ratio =
Note: The ideal ratio is 2:1
UNIT-V CAPITAL&CAPITAL
BUDGETING
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 e4xpanding 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 with in 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) The process of reducing the future cash
inflows to their present values is called discounting.
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 wgole 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 calculate 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.
NPV=
Present value of cash inflows – investment.
17) How to calculate 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 calculate 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 ?
Project generation
- Project evaluation
- Project selection
- Project execution
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