Which of the following statements about the factors affecting the requirement of fixed capital is NOT correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A labour intensive organisation requires a higher investment in plant and machinery.
Option (1) A trading concern needs a lower investment in fixed assets than a manufacturing organisation. — True. This is the factor nature of business. A trading concern buys and sells goods, so it does not need to buy plant and machinery.
Option (2) A labour intensive organisation requires a higher investment in plant and machinery. — False. This is the factor choice of technique. A labour intensive organisation relies more on manual workers, so it requires less investment in fixed assets. It is a capital intensive organisation that needs more plant and machinery.
Option (3) Availability of leasing facilities may reduce the funds required to be invested in fixed assets. — True. This is the factor financing alternatives. A firm pays lease rentals to use a leased asset, so it avoids the huge sum needed to buy it.
Option (4) Sharing of facilities between organisations reduces the investment in fixed assets for each of them. — True. This is the factor level of collaboration. When firms share a facility, such as an ATM, each of them invests less in fixed assets.
NCERT (2026-27 Edition): “1. Nature of Business: The type of business has a bearing upon the fixed capital requirements. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organisation; since it does not require to purchase plant and machinery, etc.” “3. Choice of Technique: Some organisations are capital intensive whereas others are labour intensive. A capital-intensive organisation requires higher investment in plant and machinery as it relies less on manual labour. The requirement of fixed capital for such organisations would be higher. Labour intensive organisations on the other hand require less investment in fixed assets. Hence, their fixed capital requirement is lower.” “7. Financing Alternatives: A developed financial market may provide leasing facilities as an alternative to outright purchase. When an asset is taken on lease, the firm pays lease rentals and uses it. By doing so, it avoids huge sums required to purchase it. Availability of leasing facilities, thus, may reduce the funds required to be invested in fixed assets, thereby reducing the fixed capital requirements. Such a strategy is specially suitable in high risk lines of business.” “8. Level of Collaboration: At times, certain business organisations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organisations.” |