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PSEB SS Business Studies study materials
PSEB SS Business Studies study resources

PSEB SS Business Studies practice questions

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Question 1Business Studies

A firm's total fixed costs are Rs 60,000, selling price per unit is Rs 20 and variable cost per unit is Rs 12. What is the break-even quantity in units?

  1. 3,000 units
  2. 5,000 units
  3. 7,500 units Correct answer.
  4. 1,875 units

Explanation

Break-even quantity equals total fixed costs divided by contribution per unit. Contribution per unit is Rs 20 minus Rs 12, which is Rs 8. Dividing Rs 60,000 by Rs 8 gives 7,500 units, the output at which total revenue just covers total cost.

Question 2Business Studies

Which document is sent by a seller to a buyer to inform the buyer that goods have been dispatched and to request payment?

  1. A debit note
  2. A credit note
  3. A statement of account
  4. An invoice Correct answer.

Explanation

An invoice records the details of a sale, including quantity, price and amount payable, and it is issued when goods are supplied so the buyer knows what to pay. It serves as the primary source document for recording the sale in the seller's books.

Question 3Business Studies

A business wants to raise long-term finance without giving lenders a claim over specific assets and without diluting ownership. Which source best fits this requirement?

  1. Retained earnings Correct answer.
  2. Issuing equity shares
  3. Debentures secured by a floating charge
  4. A bank overdraft

Explanation

Retained earnings are profits kept in the business rather than distributed, so they provide long-term funds with no new lenders and no dilution of ownership. They also avoid the interest cost and security requirements attached to borrowing.

Question 4Business Studies

In a partnership, which feature distinguishes a limited partner from a general partner?

  1. A limited partner has unlimited liability for firm debts
  2. A limited partner's liability is capped at the capital contributed Correct answer.
  3. A limited partner manages the firm's daily operations
  4. A limited partner takes no share of profits

Explanation

A limited partner contributes capital but is not liable beyond the amount agreed or invested, provided the partner does not take part in management. General partners, by contrast, carry unlimited liability for the debts of the partnership.

Question 5Business Studies

A manager compares actual output of 4,800 units against a budget of 5,000 units and investigates the cause. Which management function is being performed?

  1. Controlling Correct answer.
  2. Staffing
  3. Directing
  4. Organising

Explanation

Controlling involves measuring actual performance against planned standards and taking corrective action where deviations arise. Comparing output with the budget and investigating the variance is the classic control process of setting standards, measuring and correcting.

Question 6Business Studies

Which of the following best describes the marketing concept as a business orientation?

  1. Producing goods the firm is technically able to make
  2. Maximising production volume to lower unit costs
  3. Identifying customer needs and satisfying them profitably Correct answer.
  4. Aggressively pushing existing stock through heavy promotion

Explanation

The marketing concept holds that the firm should first identify what customers need and want, then organise production and selling to satisfy those needs while earning a profit. Customer satisfaction becomes the route to achieving business objectives.

Question 7Business Studies

A firm's current ratio is 2.0 and its quick ratio is 0.8. Which conclusion is most consistent with these figures?

  1. The firm holds a large proportion of current assets as inventory Correct answer.
  2. The firm's long-term debt exceeds its equity
  3. The firm has no current liabilities
  4. The firm is unable to pay its current liabilities

Explanation

The gap between a healthy current ratio of 2.0 and a low quick ratio of 0.8 suggests that inventory forms a large part of current assets, since the quick ratio removes inventory. Liquidity therefore depends heavily on converting stock into cash quickly.

Question 8Business Studies

What is the main purpose of a business plan when a start-up approaches a lender?

  1. To satisfy a legal registration requirement
  2. To show viability and support a finance request Correct answer.
  3. To forecast the firm's share price
  4. To record past transactions systematically

Explanation

A business plan sets out the idea, market, operations and financial forecasts so that lenders and investors can judge whether the venture is viable. It is a persuasive and analytical document used to support a request for finance.

Question 9Business Studies

A firm reduces its workforce by 15 per cent and later finds that customer complaints rise sharply. Which consequence of downsizing does this illustrate?

  1. Improved employee morale
  2. Loss of skills and reduced service quality Correct answer.
  3. Increased span of control for no reason
  4. Lower fixed costs with no side effects

Explanation

Downsizing can remove experienced staff and increase workload on those who remain, which may damage service quality and customer satisfaction. The rise in complaints is evidence of lost skills and capacity rather than a purely financial gain.

Question 10Business Studies

Under the labour turnover formula, if 40 employees left during the year and average number of employees was 500, what is the labour turnover rate?

  1. 20 per cent
  2. 8 per cent Correct answer.
  3. 12.5 per cent
  4. 4 per cent

Explanation

Labour turnover is the number of leavers divided by the average workforce, expressed as a percentage. Dividing 40 by 500 gives 0.08, which is 8 per cent for the year.

Question 11Business Studies

Which pricing strategy sets a high initial price for an innovative product to recover development costs from early adopters?

  1. Penetration pricing
  2. Price skimming Correct answer.
  3. Cost-plus pricing
  4. Predatory pricing

Explanation

Price skimming launches a product at a high price to capture consumers willing to pay more, then lowers the price over time as competition grows. It suits innovative or novelty products with limited initial competition.

Question 12Business Studies

A company's gearing ratio is 65 per cent. What does this indicate about its financial structure?

  1. The company has no long-term borrowing
  2. A high proportion of capital employed is financed by debt Correct answer.
  3. The company is highly liquid in the short term
  4. Debt forms a small part of total capital employed

Explanation

Gearing compares long-term debt with total capital employed, so 65 per cent means most of the capital is debt-financed. High gearing increases fixed interest obligations and financial risk if profits fall.

Question 13Business Studies

Which element of the marketing mix deals with the channels through which a product reaches the final customer?

  1. Place Correct answer.
  2. Price
  3. Product
  4. Promotion

Explanation

Place covers distribution decisions such as the choice of retailers, wholesalers, online channels and logistics that move the product to customers. It concerns availability and access rather than the product itself or its price.

Question 14Business Studies

A bakery buys a new oven for Rs 900,000 that is expected to last five years with no residual value. Using straight-line depreciation, what is the annual depreciation charge?

  1. Rs 180,000 Correct answer.
  2. Rs 90,000
  3. Rs 150,000
  4. Rs 450,000

Explanation

Straight-line depreciation spreads the depreciable cost evenly over the useful life. Dividing Rs 900,000 by five years gives Rs 180,000 each year.

Question 15Business Studies

Which of the following is an example of a variable cost for a manufacturer?

  1. Raw materials used in production Correct answer.
  2. Salaries of senior managers
  3. Insurance on the building
  4. Factory rent paid monthly

Explanation

Variable costs change in direct proportion to output, and raw materials are consumed with each unit produced. Rent, insurance and management salaries tend to remain fixed over a range of output.

Question 16Business Studies

A firm's sales revenue rises from Rs 200,000 to Rs 240,000 while its profit rises from Rs 20,000 to Rs 32,000. What is the percentage increase in profit?

  1. 75 per cent
  2. 12 per cent
  3. 20 per cent
  4. 60 per cent Correct answer.

Explanation

Percentage change is the change divided by the original figure, multiplied by 100. Profit increased by Rs 12,000 from a base of Rs 20,000, giving 12,000 divided by 20,000, which is 60 per cent.

Question 17Business Studies

Which statement best explains why a business might choose to operate as a private limited company rather than a sole trader?

  1. It pays no tax on its profits
  2. It avoids all reporting and filing obligations
  3. It gains limited liability and can raise capital by issuing shares to selected investors Correct answer.
  4. It can sell shares freely on a public stock exchange

Explanation

Incorporation as a private limited company gives shareholders limited liability and allows the firm to raise capital by issuing shares privately. It also creates a separate legal identity, though it brings filing obligations.

Question 18Business Studies

A firm uses a just-in-time inventory system. Which benefit is most directly associated with this approach?

  1. Larger discounts from bulk buying
  2. Protection against sudden supply shortages
  3. Simpler scheduling of production
  4. Reduced inventory holding costs Correct answer.

Explanation

Just-in-time systems arrange for materials to arrive as they are needed, so stock levels and the associated storage, insurance and tied-up capital costs fall. The trade-off is greater vulnerability to supply disruption.

Question 19Business Studies

Which of the following is a characteristic of a democratic leadership style?

  1. Employees set their own objectives without any guidance
  2. Employees are consulted before decisions are finalised Correct answer.
  3. Managers rely on fear and punishment to secure compliance
  4. Decisions are made solely by the manager without consultation

Explanation

Democratic leadership involves the manager in consulting the team and taking their views into account before deciding. It can improve motivation and commitment, though decision-making may take longer.

Question 20Business Studies

A firm's gross profit margin falls from 40 per cent to 30 per cent while sales revenue stays constant. Which explanation is most plausible?

  1. Cost of goods sold has risen relative to sales Correct answer.
  2. Administrative expenses have fallen
  3. The firm has repaid a long-term loan
  4. The number of employees has been reduced

Explanation

Gross profit margin is gross profit divided by sales revenue, and gross profit is revenue minus cost of goods sold. If revenue is unchanged and the margin falls, the cost of goods sold must have taken a larger share of revenue.

Question 21Business Studies

Which of the following best defines a stakeholder in a business?

  1. Any individual or group affected by the decisions of the business Correct answer.
  2. Only the shareholders who own the company
  3. A government body that regulates the business
  4. Only the employees who work for the business

Explanation

Stakeholders are all individuals or groups with an interest in the business or affected by its activities, including owners, employees, customers, suppliers and the community. Shareholders are one category among several.

Question 22Business Studies

A company introduces a new appraisal system, and staff resist it because they were not consulted. Which approach is most likely to reduce this resistance?

  1. Replacing all existing staff
  2. Delaying the system indefinitely
  3. Imposing the system with formal warnings
  4. Communicating the reasons for change and involving staff in its design Correct answer.

Explanation

Resistance often stems from fear of the unknown and a sense of lost control, so communication and participation are effective ways of building commitment. Involving staff in designing the system gives them ownership of the change.

Question 23Business Studies

A business sells 10,000 units at Rs 50 each. Its total costs are Rs 420,000, of which Rs 120,000 are fixed. What is its margin of safety in units?

  1. 2,000 units Correct answer.
  2. 4,000 units
  3. 8,000 units
  4. 6,000 units

Explanation

Variable cost per unit is Rs 300,000 divided by 10,000 units, which is Rs 30, giving contribution of Rs 20 per unit. Fixed costs of Rs 120,000 divided by Rs 20 give a break-even point of 6,000 units, so the margin of safety is 10,000 minus 6,000, or 2,000 units.

Question 24Business Studies

Which of the following is the main advantage of using sampling rather than a census in market research?

  1. It guarantees results identical to a census
  2. It removes all possibility of bias
  3. It is faster and cheaper to conduct Correct answer.
  4. It requires no interpretation of data

Explanation

Sampling collects data from a subset of the population, which reduces the time and cost of research compared with surveying everyone. The trade-off is that results are estimates and may carry sampling error.

Question 25Business Studies

A firm's cash flow forecast shows a large negative net cash flow in month three even though the business is profitable. Which explanation is most likely?

  1. The firm has overstated its sales revenue
  2. The forecast period is too short
  3. Customers have been given long credit terms while suppliers are paid promptly Correct answer.
  4. The firm has understated its fixed costs

Explanation

Profit records revenue when it is earned, but cash flow records money actually received and paid. If customers pay late while suppliers are paid quickly, cash outflows run ahead of inflows and a profitable firm can still show negative cash flow.

Question 26Business Studies

Which document sets out the internal rules governing how a company is managed, including the division of power between directors and shareholders?

  1. Articles of association Correct answer.
  2. Prospectus
  3. Certificate of incorporation
  4. Memorandum of association

Explanation

The articles of association are the internal constitution of a company, covering matters such as the appointment of directors, voting rights and the conduct of meetings. The memorandum deals with the company's relationship with the outside world, while the certificate of incorporation is simply the evidence that the company legally exists.

Question 27Business Studies

A sole trader wants to raise additional capital without losing control of day-to-day decisions and without the formalities of incorporation. Which option is most suitable?

  1. Converting into a public limited company
  2. Taking on a sleeping partner in a partnership Correct answer.
  3. Issuing shares to the public
  4. Obtaining a stock exchange listing

Explanation

A partnership can bring in capital from a sleeping partner who contributes funds but takes no part in management, allowing the sole trader to keep operating control. Issuing shares or listing on a stock exchange requires incorporation as a company and brings external shareholders and regulation.

Question 28Business Studies

Which source of finance is most appropriate for purchasing raw materials that will be resold within two months?

  1. A mortgage on the factory
  2. A ten-year debenture
  3. An issue of ordinary shares
  4. A bank overdraft Correct answer.

Explanation

Short-term needs such as buying stock that turns over quickly should be matched with short-term finance, and an overdraft is flexible and repayable on demand. Long-term sources like debentures, shares or mortgages are suited to fixed assets and would leave the firm paying interest long after the stock has been sold.

Question 29Business Studies

A business calculates break-even as fixed costs divided by contribution per unit. If fixed costs are Rs 60,000 and contribution per unit is Rs 15, what is the break-even output?

  1. 9,000 units
  2. 400 units
  3. 900 units
  4. 4,000 units Correct answer.

Explanation

Break-even output equals fixed costs divided by contribution per unit, so Rs 60,000 divided by Rs 15 gives 4,000 units. At this volume total contribution exactly covers fixed costs and profit is zero.

Question 30Business Studies

A firm's cash flow forecast shows a large closing balance in month one but a deficit by month four. Which action best addresses the underlying problem?

  1. Record the sales revenue earlier in the accounts
  2. Negotiate longer credit terms from suppliers to delay cash outflows Correct answer.
  3. Increase the depreciation charge on machinery
  4. Reduce the selling price to boost sales volume

Explanation

A cash deficit arising from timing means outflows are occurring before inflows arrive, so extending supplier credit shifts payments later and eases the gap. Accounting adjustments such as earlier revenue recognition or higher depreciation do not change the actual timing of cash receipts and payments.

Question 31Business Studies

Which statement best describes the purpose of a variance report in budgetary control?

  1. It records the daily cash receipts and payments of the business
  2. It sets the selling price for each product line
  3. It lists the assets owned by the business and their values
  4. It compares budgeted and actual figures so that significant differences can be investigated Correct answer.

Explanation

Variance analysis identifies the gap between planned and actual performance and highlights where managers should investigate the cause. Adverse or favourable variances then inform corrective action in the next budget period.

Question 32Business Studies

A manager reorganises a department so that each supervisor reports to only one line manager and clear authority runs from top to bottom. Which principle is being applied?

  1. Delegation
  2. Unity of command Correct answer.
  3. Decentralisation
  4. Span of control

Explanation

Unity of command means each subordinate has a single clear superior, avoiding conflicting instructions. Span of control refers to how many subordinates report to one manager, while delegation and decentralisation concern the passing down of authority rather than the number of bosses.

Question 33Business Studies

A production manager uses a Gantt chart to schedule a factory expansion. Which benefit does this tool provide most directly?

  1. It shows the sequence and timing of activities so overlaps and delays can be spotted Correct answer.
  2. It guarantees that the project will finish on time
  3. It measures employee motivation during the project
  4. It calculates the exact cost of each activity

Explanation

A Gantt chart displays tasks along a time axis, making dependencies, parallel activities and slippage visible to the project manager. It is a scheduling aid and does not itself control costs, guarantee completion or measure motivation.

Question 34Business Studies

Which method of production is most suitable for a firm making bespoke wedding dresses, where each garment is unique?

  1. Cell production
  2. Batch production
  3. Flow production
  4. Job production Correct answer.

Explanation

Job production involves completing one unique item to a customer's specification before starting the next, which suits bespoke garments. Batch and flow methods rely on standardised, repeated output and cannot easily accommodate one-off designs.

Question 35Business Studies

A firm introduces quality circles in which small groups of workers meet regularly to identify and solve production problems. Which benefit is most directly expected?

  1. Lower fixed costs through reduced factory rent
  2. Improved employee involvement leading to fewer defects Correct answer.
  3. Immediate reduction in the firm's tax liability
  4. A guaranteed increase in the selling price

Explanation

Quality circles draw on the knowledge of shop-floor staff, raising motivation and catching problems early, which typically reduces defects and waste. They do not alter fixed costs such as rent, nor do they directly change prices or tax.

Question 36Business Studies

Which of the following best describes the purpose of a SWOT analysis for a business?

  1. To calculate the break-even point for a new product
  2. To record the daily transactions of the business
  3. To assess internal strengths and weaknesses alongside external opportunities and threats Correct answer.
  4. To set the wage rates for each grade of staff

Explanation

SWOT brings together internal factors the firm controls (strengths and weaknesses) with external factors it does not (opportunities and threats), giving a basis for strategic decisions. It is a qualitative planning tool rather than a numerical calculation or bookkeeping record.

Question 37Business Studies

A business selling soft drinks conducts a survey of 500 shoppers chosen at random from its target city. Which limitation of this research is most significant?

  1. Random selection makes the results biased
  2. The sample size of 500 is too small to be analysed
  3. Surveys cannot collect quantitative data
  4. The sample may not represent customers outside that city Correct answer.

Explanation

The sample is drawn from one city, so findings may not be generalisable to the wider market the firm may wish to enter. A sample of 500 is generally workable, random selection reduces rather than creates bias, and surveys can readily produce numerical data.

Question 38Business Studies

A firm segments its market by dividing customers according to age, income and occupation. Which type of segmentation is being used?

  1. Behavioural segmentation
  2. Demographic segmentation Correct answer.
  3. Psychographic segmentation
  4. Geographic segmentation

Explanation

Demographic segmentation groups customers by measurable population characteristics such as age, income, gender and occupation. Geographic, psychographic and behavioural segmentation use location, lifestyle and purchasing habits respectively.

Question 39Business Studies

A firm's product has reached the maturity stage of the product life cycle. Which marketing response is most appropriate?

  1. Cut all promotional spending to zero
  2. Raise the price sharply to exploit early adopters
  3. Withdraw the product immediately from the market
  4. Differentiate the product and seek new market segments to sustain sales Correct answer.

Explanation

At maturity sales growth slows and competition intensifies, so extension strategies such as product differentiation, new segments or packaging changes help prolong the life cycle. Immediate withdrawal forfeits remaining profits, and price rises or zero promotion would accelerate decline.

Question 40Business Studies

A business wants to build long-term customer loyalty rather than pursue one-off sales. Which approach is most consistent with this aim?

  1. Offering after-sales service and loyalty rewards to repeat buyers Correct answer.
  2. Reducing product quality to lower costs
  3. Cutting prices temporarily to clear old stock
  4. Running a single high-pressure sales promotion

Explanation

Customer relationship management focuses on retaining customers through service quality and rewards, because repeat customers are cheaper to serve and generate ongoing revenue. Short-term promotions or quality cuts may boost immediate sales but erode trust and loyalty.

Question 41Business Studies

Which statement correctly distinguishes induction from on-the-job training?

  1. Induction and on-the-job training are identical activities with different names
  2. Induction familiarises a new recruit with the organisation, while on-the-job training develops task skills at the workplace Correct answer.
  3. Induction teaches technical skills, while on-the-job training explains company rules
  4. Induction is only for senior managers, while on-the-job training is only for new staff

Explanation

Induction introduces a new employee to the organisation's culture, policies and colleagues, whereas on-the-job training builds specific job competencies while the employee carries out work. The two serve different purposes and are usually delivered at different points.

Question 42Business Studies

A firm uses an appraisal system in which each employee is rated against preset targets and given a score. Which weakness is most associated with this approach?

  1. It may focus narrowly on measurable targets and overlook wider contribution Correct answer.
  2. It removes any record of employee performance
  3. It prevents managers from giving feedback of any kind
  4. It makes employees unaware of what is expected of them

Explanation

Target-based rating systems can encourage employees to chase measurable outputs while neglecting harder-to-measure aspects such as teamwork and customer care. The system does provide a performance record and does communicate expectations, so those are not its weaknesses.

Question 43Business Studies

Which of the following is a non-financial method of motivating staff?

  1. Payment of overtime at a higher rate
  2. Job enrichment that gives employees greater responsibility Correct answer.
  3. A performance-related bonus
  4. A company pension contribution

Explanation

Non-financial motivation works through the nature of the work itself, such as greater responsibility, autonomy and recognition, rather than through money. Bonuses, overtime pay and pensions are all financial rewards.

Question 44Business Studies

A firm's labour productivity is calculated as output divided by the number of employees. Output rises from 8,000 to 9,600 units while employee numbers stay at 40. What is the percentage increase in labour productivity?

  1. 40 per cent
  2. 20 per cent Correct answer.
  3. 25 per cent
  4. 16 per cent

Explanation

Productivity per employee rises from 200 units (8,000/40) to 240 units (9,600/40), an increase of 40 units on a base of 200, or 20 per cent. Because employee numbers are unchanged, the percentage rise in productivity equals the percentage rise in output.

Question 45Business Studies

A business decides to relocate part of its call centre to a country with lower wage costs. Which reason for this decision is most directly relevant?

  1. Reducing operating costs to improve competitiveness Correct answer.
  2. Meeting legal requirements in the home country
  3. Increasing the range of products offered
  4. Improving the quality of customer service

Explanation

Offshoring labour-intensive activities to lower-wage locations is primarily a cost-reduction strategy intended to improve margins or allow lower prices. It does not by itself widen the product range, raise service quality, or satisfy a legal obligation.

Question 46Business Studies

Which of the following best describes the role of a trade union in a workplace?

  1. To set the selling prices of the firm's products
  2. To audit the firm's annual accounts
  3. To recruit new senior managers for the firm
  4. To negotiate collectively with employers on pay and conditions on behalf of members Correct answer.

Explanation

Trade unions represent employees collectively, bargaining over pay, hours, safety and other conditions and supporting members in disputes. Pricing, auditing and management recruitment are functions of management or external professionals.

Question 47Business Studies

A firm's profit and loss account shows revenue of Rs 500,000, cost of sales of Rs 300,000 and operating expenses of Rs 150,000. What is its net profit?

  1. Rs 350,000
  2. Rs 200,000
  3. Rs 50,000 Correct answer.
  4. Rs 150,000

Explanation

Gross profit is revenue minus cost of sales, giving Rs 200,000, and net profit deducts operating expenses of Rs 150,000, leaving Rs 50,000. Net profit is the residual after all the expenses shown in the account are subtracted.

Question 48Business Studies

A firm's acid test ratio is 0.7. Which interpretation is most appropriate?

  1. The firm has no current liabilities
  2. The firm has excessive liquid assets and should invest them
  3. The firm may struggle to meet short-term debts without selling inventory Correct answer.
  4. The firm is highly profitable in the current year

Explanation

An acid test below 1 means current assets excluding stock are insufficient to cover current liabilities, suggesting a liquidity risk if stock cannot be sold quickly. It says nothing directly about profitability and implies current liabilities do exist.

Question 49Business Studies

Which of the following is most likely to be classified as a fixed asset on a company's balance sheet?

  1. Cash held at the bank
  2. Delivery vehicles used by the business Correct answer.
  3. Stock of raw materials awaiting use
  4. Trade receivables from customers

Explanation

Fixed assets are long-term resources retained for use in the business rather than for resale, such as vehicles, machinery and premises. Stock, receivables and cash are current assets because they will be converted into cash within the operating cycle.

Question 50Business Studies

An investor compares two companies and notes that one has a dividend yield of 2 per cent while the other has 6 per cent. Which conclusion is most reasonable?

  1. The second company is necessarily more profitable
  2. The first company has a higher share price in absolute terms
  3. The second company returns more cash per rupee of share price, but may be retaining less for growth Correct answer.
  4. The first company must be loss-making

Explanation

Dividend yield expresses the annual dividend as a percentage of the share price, so a higher yield means more income per rupee invested, often because a firm distributes rather than retains earnings. Yield alone does not reveal total profitability or the absolute share price.