[Jun-2026] L4M7 Pre-Exam Practice Tests | Exam Questions and Answers for Level 4 Diploma in Procurement and Supply Study Guide
CIPS Whole Life Asset Management Certification Sample Questions
NEW QUESTION # 56
Global supply chains can increase efficiency, but they can also increase risk. As a result, the extended supply chain now has many additional points of potential failure. These can include ...
- A. that the purchasing team have no or little experience of dealing with international suppliers, which could increase costs
- B. The price that you charge to customers at time of sale may be lower than the cost it took to manufacture the item
- C. contract terms and conditions that do not reflect the balance of power between the contracting parties
- D. a fluctuation in currency exchange rates that may mean you pay more for the item at time of purchase than at time of contract
Answer: D
NEW QUESTION # 57
Which of the following statements is true of just-in-time (JIT) purchasing?
- A. In JIT purchasing, raw materials (or goods) are purchased so that products are delivered just as needed for production or sales
- B. JIT purchasing is guided solely by the EOQ model because that model emphasizes the tradeoff between relevant carrying and ordering costs
- C. Only disadvantage of JIT purchasing is the higher level carrying and inspection costs
- D. In JIT purchasing, the optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and carrying costs
Answer: A
Explanation:
Just-in-time (JIT) purchasing is a systems approach for developing and operating the purchasing function. JIT purchasing along with the total quality management in many industries has been suc-cessful in reducing inventory and increasing the overall effectiveness of purchasing function and hence the productivity of manufacturing.
The just-in-time objectives of eliminating waste can be summarised in the 'five zeros: zero defects, zero set-up times, zero inventories, zero handling and zero lead times.
The correct answer should be 'In JIT purchasing, raw materials (or goods) are purchased so that products are delivered just as needed for production or sales' because it expresses that upstream activity (purchasing) only occurs as the downstream activity (production or sales) triggers.
Reference: CIPS study guide page 122-127
LO 2, AC 2.3
NEW QUESTION # 58
What is the different between gross material requirements plan (gross MRP) and a net material requirements plan (net MRP)?
- A. The gross requirement doesn't take taxes into account, whereas the net requirement includes the tax considerations
- B. The net MRP includes the amount of inventory on hand, whereas the gross MRP does not
- C. The gross MRP includes consideration of available inventory, whereas the net MRP does not
- D. The gross MRP is mostly paper-based, but the net MRP must be computerised
Answer: C
Explanation:
Material requirement planning (MRP) is a production planning and material (inventory) control system used in manufacturing. Objectives of MRP are to ensure materials are available for production while minimising inventory and to plan production and procurement activities.
MRP software combines the master production schedule, the bill of materials and the inventory information to work out the net requirements (net MRP) of what to purchase or produce and when.
These net requirements are worked out using the following equation:
Net requirements = Total requirements - Available inventory
Where:
Total requirement = Gross requirements (gross MRP)
Available inventory = Inventory on hand + Units on order
In the other words, Gross MRP = Net MRP + Available inventory, so the answer should be "The gross MRP includes consideration of available inventory, whereas the net MRP does not" LO 2, AC 2.3
NEW QUESTION # 59
ANTA Logistics is looking for a place to build a new, integrated cold chain facility, "Chill Hub", to its customers. Which of the following need to be considered when selecting the location of the new facility?
Select TWO that apply.
- A. Availability of the building
- B. Volume of obsolescent stock
- C. Availability of product coding system
- D. Accessibility to roads and highways
- E. Ease of objective forecasting on inventory level
Answer: A,D
Explanation:
There are many different factors that must be considered when assessing warehouse and stock locations:
* Operating cost of the location or area
* Availability and suitability of warehouses
* Availability of manpower or labour
* Proximity to suppliers and customers
* Access to transport infrastructure (domestic and international)
* The political and security environment of the location
LO 1, AC 1.1
NEW QUESTION # 60
Lean principle focuses on eliminating eight types of waste. Waste in Lean manufacturing is defined as...?
- A. Rejection of material because of quality related problems
- B. Part of activity when operator is idle
- C. Non value-adding steps in a process
- D. Part of any activity which is inevitable
Answer: C
Explanation:
Lean thinking aims to remove wastes from work processes. Before diving into the 8 wastes, it is important to understand what waste is. Waste is any action or step in a process that does not add value to the customer. In other words, waste is any process that the customer does not want to pay for.
The original seven wastes (Muda) was developed by Taiichi Ohno, the Chief Engineer at Toyota, as part of the Toyota Production System (TPS). The seven wastes are Transportation, Inventory, Motion, Waiting, Overproduction, Overprocessing and Defects. They are often referred to by the acronym 'TIMWOOD'. The
8th waste of non-utilized talent or 'Skills' of workers was later introduced in the 1990s when the Toyota Production System was adopted in the Western world. As a result, the 8 wastes are commonly referred to as
'TIMWOODS'.
Source: The lean way
NEW QUESTION # 61
Ranger Mobile Ltd is a emerging smartphone manufacturer. The manufacturer adopts the just-in-time method: First, the customers make orders, then it will decide which components to be pur-chased according to the bill of materials. These components are known as which of the following?
- A. Dependent demand items
- B. Indirect items
- C. Independent forecast items
- D. Capital goods
Answer: A
Explanation:
Dependent demand is the requirement for stock item which is directly related to and therefore de-pendent upon the rate of production (examples are: raw materials, components, energy). The com-ponents in the scenario are dependent demand items.
Independent demand is the requirement for stock item which is not directly related to, and is therefore independent of rate of production.
Reference:
LO 2, AC 2.1
NEW QUESTION # 62
ANTA Logistics is looking for a place to build a new, integrated cold chain facility, "Chill Hub", to its customers. Which of the following need to be considered when selecting the location of the new facility? Select TWO that apply.
- A. Availability of the building
- B. Volume of obsolescent stock
- C. Availability of product coding system
- D. Accessibility to roads and highways
- E. Ease of objective forecasting on inventory level
Answer: A,D
Explanation:
There are many different factors that must be considered when assessing warehouse and stock locations:
* Operating cost of the location or area
* Availability and suitability of warehouses
* Availability of manpower or labour
* Proximity to suppliers and customers
* Access to transport infrastructure (domestic and international)
* The political and security environment of the location
LO 1, AC 1.1
NEW QUESTION # 63
Amanda is the purchasing manager for AB Construction based in France. She is considering purchasing an asset from overseas but knows she must account for fluctuations in exchange rates in the contract. Is Amanda correct?
- A. No, as the price can be re-negotiated post-contract sign-off by AB Construction and the supplier
- B. Yes, as AB Construction could pay more for the asset than intended and Amanda should include a currency fluctuation clause
- C. No, as it will be better to purchase the asset in AB Construction's local currency as it would be efficient and more stable
- D. Yes, as Amanda will be able to decide the currency exchange rates to be used
Answer: B
Explanation:
Including a currency fluctuation clause protects against exchange rate volatility, which can increase the final cost if the currency depreciates. Whole-life asset management often incorporates such risk management measures to ensure cost predictability and avoid unanticipated financial impact on long-term projects.
NEW QUESTION # 64
Company XYZ is a candy manufacturer. Company XYZ makes a batch of 1,000 Christmas candy canes that are no longer edible after December 31. Company XYZ is able to sell 750 canes of the batch, but the other
250 are sitting in the warehouse. December 31 comes, and these candy canes is no longer sell-able. The batch of 250 candy canes belongs to which type of inventory?
- A. Stockout
- B. Obsolete inventory
- C. Buffer stock
- D. Redundant inventory
Answer: B
Explanation:
Obsolescent stock is stock, usually finished goods, which is in good condition and satisfactory working but for which demand is irreversibly falling towards zero. Once this demand reaches zero the stock can be considered 'obsolete'. It cannot be used or sold in its current state. Food ingredients (like candy canes) which are out of date are another example.
NEW QUESTION # 65
Which of the following is the correct statement about total ordering cost?
- A. Equal the number of orders placed times the cost of placing an order
- B. Rise as the average stock level rises
- C. Rise as the order quantity rises
- D. Fall with the per period usage rate
Answer: A
Explanation:
Typically, ordering costs include expenses for a purchase order, labor costs for the inspection of goods received, labor costs for placing the goods received in stock, labor costs for issuing a supplier's invoice and labor costs for issuing a supplier payment. These costs are irrelevant from the size of the order and are incurred every time a firm places an order.
The total ordering cost will be equal to ordering cost per order multiply with number of orders.
NEW QUESTION # 66
Which is the best definition of reorder point?
- A. The point when one unit of stock remains in stock
- B. The level inventory at which an order must be made
- C. The point when stock reaches zero
- D. The point at which stock will fall to zero minus lead-time
Answer: B
Explanation:
Reorder point is the point either in time or in a process when the next order should be placed.
NEW QUESTION # 67
Bulk loose coal that requires massive handling system should be stored in which area?
- A. Heating warehouse
- B. Chill hub
- C. Store
- D. Stockyard
Answer: D
Explanation:
Materials that will not easily deteriorate, are generally stored in open or fairly covered areas (stockyard). The materials are usually in bulk, like steel plates or coils casting, timber coal, steel barrels, cable drums, piping, lampposts, lorries, etc.
Stockyards are open or semi-covered areas that are used for the following:
- Bulk loose or packaged materials
- Bulky or oversized items that may be difficult to move inside
- Materials that may require specialised handling, loading or unloading Below image shows the example of a stockyard that stores loose coal and its handling system.
LO 1, AC 1.1
NEW QUESTION # 68
Stockyards are suitable for specific materials with which of the following characteristics? SelectTWOthat apply.
- A. Equipment that requires larger specialised handling
- B. Equipment with a long delivery lead time
- C. Small equipment that is of relatively low value
- D. Equipment only suited for inside storage
- E. Items that are bulky and individually packed
Answer: A,E
NEW QUESTION # 69
What term describes the method used to account for inventory, where the most recently produced items are recorded as sold first?
- A. Last in, last out
- B. First in, first out
- C. Last in, first out
- D. First in, last out
Answer: C
Explanation:
Last In, First Out (LIFO) is an inventory valuation method where the latest items added to inventory are considered sold first. This method is often used in situations where prices are rising, as it reflects the current cost of goods sold. In whole-life asset management, LIFO can affect the reported value of inventory and, consequently, tax implications, as newer, costlier items are sold off first.
NEW QUESTION # 70
Which of the following lists all components, ingredients, and materials required to produce the final product?
- A. Engineering change notice
- B. Master schedule
- C. Purchase order
- D. Bill of materials
Answer: D
Explanation:
Master production schedule (MPS) plans items that have "direct" demand, or "independent de-mand." With independent demand, the demand comes from sales orders, service orders, or fore-casts, and the demand comes directly from customer-or forecasted-requirements. It is the list that provides the timing of the production schedule and shows how much each machine can produce, how many shifts are used, etc.
A bill of materials (BOM) is a comprehensive inventory of the raw materials, assemblies, subas-semblies, parts and components, as well as the quantities of each, needed to manufacture a product.
Reference:
LO 2, AC 2.3
NEW QUESTION # 71
A procurement manager is considering leasing premises rather than purchasing them. If the company decides to lease premises, which of the following are correct?
1. The lessee has possession and use of the asset
2. The asset is subject to a hire purchase agreement
3. The lessor retains ownership of the asset
4. At the end of the lease. ownership automatically transfers to the lessee
- A. 2 and 3 only
- B. 1 and 3 only
- C. 3 and 4 only
- D. 1 and 2 only
Answer: D
NEW QUESTION # 72
Removal or disposal of assets should depend on an assessment of which of the following? SelectTWOthat apply.
- A. Location of the equipment and accessibility
- B. Type of equipment and incorporated components
- C. Consumer demand for the product
- D. The current rate of interest for new equipment
- E. The total cost of the equipment
Answer: A,B
NEW QUESTION # 73
Which of the following allow an organisation to have more flexible space for storage by leveraging the facilities of other parties? Select TWO that apply.
- A. Temporary warehousing
- B. Adopting carousel-type storage
- C. Eliminating dead stock or inventory
- D. Consignment stocking
- E. Installing double-deep pallet racking
Answer: A,D
Explanation:
Temporary warehousing (or 'Very short-term warehousing') is offered in the market where organ-isation makes their requirements for space open online to offers or bids for available space. This appears to be an emerging market and service providers in the UK and USA typically quote a price per pallet per week with some also requiring a 'transaction fee' for movements of each pallet in and out.
Consignment stocking is a facility offered by a supplier to a buyer to allow a delivery of stock to the buyer with payment only after it is used or sold to a customer.
Double-deep pallet racking and carousel-style storage are two tools that leverage space within a warehouse:
Double-deep pallet rack
Carousel style storage
Reference:
LO 1, AC 1.1
NEW QUESTION # 74
Hi-Tech Products Inc. (HTP) has just opened a new state-of-the-art distribution centre. It has invested heavily in new technology that will help manage, store, and identify stock items and their locations quickly and continuously. Its investment uses wireless technology. HTP will be using which of the following?
- A. Barcodes
- B. Handheld scanning devices
- C. Radio Frequency Identification (RFID)
- D. ABC classification management
Answer: C
NEW QUESTION # 75
Manufacturing resources planning (MRP II) was developed from material requirement planning (MRP).
Which of the following is the additional input that is available in MRP II but does not ap-pear in MRP?
- A. Bill of materials
- B. Master production schedule
- C. Finance
- D. Inventory records
Answer: C
Explanation:
MRP I was some of the first business software to be widely adopted during the 1970s. Manufacturers sought these systems in order to improve efficiency and accuracy when it came to basic processes such as production scheduling and inventory management.
By the 1980s, manufacturers realized they needed software that could also tie into their accounting systems and forecast inventory requirements. Enter MRP II, which included these integrations in addition to all the capabilities offered by MRP I. Enterprise resource planning (ERP) software features-which we'll cover later on-are included in the following table for comparison.
Graphical user interface Description automatically generated
NEW QUESTION # 76
A manufacturing company warehouse manager has recently decided to adopt a cross-docking system for some of the components held in storage. Which of the following is associated with goods in cross-docking?
- A. Cross-docking eliminates any inventory losses
- B. Cross-docking leads to increased finished goods delivery costs
- C. Cross-docking significantly increases delivery lead times
- D. Cross-docking reduces or eliminates storage requirements
Answer: B
NEW QUESTION # 77
When accounting for the disposal of fixed assets, the gain or loss on disposal is equal to...?
- A. The difference between resale price and the cost of that asset
- B. The difference between resale price and the cost or valuation less accumulated depre-ciation up to the date of disposal
- C. The difference between resale price and the cost of the asset less depreciation up to the beginning of the year in which disposal took place
- D. The difference between resale price and the cost or valuation plus depreciation up to the beginning of the year in which disposal took place
Answer: C
Explanation:
Fixed assets may be sold anytime during their useful life. This gives rise to the need to derecognize the asset from balance sheet and recognize any resulting gain or loss in the income statement.
The accounting for disposal of fixed assets can be summarized as follows:
- Record cash receive or the receivable created from the sale:
Debit Cash/Receivable
- Remove the asset from the balance sheet
Credit Fixed Asset (Net Book Value)
- Recognize the resulting gain or loss
Debit/Credit Gain or Loss (Income Statement)
Example
ABC LTD purchased a machine for $2000 on 1st January 2001 which had a useful life of 5 years and an estimated residual value of $500. The machine was being depreciated on straight line basis. However, ABC LTD decided to sell the asset on1 January 2003 for $1500 in order to raise cash for the purchase of a new machine.
The disposal of the fixed asset will be recorded as follows:
Record cash received or the receivable arising from the sale:
Debit Cash $1,500
Remove the asset from the balance sheet
As a fixed asset is recognized in the balance sheet at the Net Book Value (i.e. Cost less Accumulated Depreciation), the machine will be removed from the accounts of ABC LTD in two parts:
First, the Machine Cost must be removed by crediting the ledger:
Credit Machine Cost $2,500
Second, the Accumulated Depreciation in respect of the machine must be removed by debiting the ledger:
Debit Accumalated Depreciation $600*
*Accumulated Depreciation: (2000 - 500)/5 x 2 Years
The combined effect of the above two transactions would be to remove the machine's net book value of $1400 (2000 - 600) from the balance sheet.
Recognize the resulting gain or loss on the sale of machine
ABC LTD received $1500 for an asset with a balance sheet worth of $1400. It therefore earned a gain of
$100. The gain will be recorded as follows:
Credit Gain on Disposal $100
NEW QUESTION # 78
Which of the following are warehouse layouts that allow the cross aisle to meet picking aisle at angles different from 90 degrees?
1. 'Fan' shaped layout
2. Herringbone-shaped layout
3. U-shape layout
4. L-shape layout
- A. 2 and 3 only
- B. 1 and 3 only
- C. 3 and 4 only
- D. 1 and 2 only
Answer: D
Explanation:
In a traditional warehouse, storage racks are arranged to create parallel picking aisles, perhaps with one or more cross aisles to allow workers to move quickly between picking aisles. This structure forces workers to travel rectilinear distances (north-south and east-west) to picking locations.
Kevin R. Gue and Russell D. Meller proposed alternative aisle designs:
- The 'Fan' shaped layout (or "Flying V"). This layout maintains parallel picking aisles, but al-lows the cross aisle to take on a different shape. If travel begins and ends at the bottom of the V, Gue and Meller expected distance to retrieve a single pallet is 10% less in this warehouse than in an equivalent traditional design.
- The Herringbone-shaped layout (or commonly referred as Fishbone layout) combines the verti-cal picking rows of a traditional warehouse with a second set of horizontal picking rows, divided by a V-shaped diagonal alley crossing the entire warehouse. This simple modification to the typical warehouse design allows employees (e.g. a forklift driver) to increase travel speed between picking locations. Efficiency gains achieved through a layout reconfiguration would reduce picking cost up to 23% compared to an equivalent warehouse using a traditional configuration.
Reference
Aisle Design - Kevin Gue
LO 1, AC 1.1
NEW QUESTION # 79
Which of the following are warehouse layouts that allow the cross aisle to meet picking aisle at angles different from 90 degrees?
1. 'Fan' shaped layout
2. Herringbone-shaped layout
3. U-shape layout
4. L-shape layout
- A. 2 and 3 only
- B. 1 and 3 only
- C. 3 and 4 only
- D. 1 and 2 only
Answer: D
Explanation:
In a traditional warehouse, storage racks are arranged to create parallel picking aisles, perhaps with one or more cross aisles to allow workers to move quickly between picking aisles. This structure forces workers to travel rectilinear distances (north-south and east-west) to picking locations.
Kevin R. Gue and Russell D. Meller proposed alternative aisle designs:
- The 'Fan' shaped layout (or "Flying V"). This layout maintains parallel picking aisles, but al-lows the cross aisle to take on a different shape. If travel begins and ends at the bottom of the V, Gue and Meller expected distance to retrieve a single pallet is 10% less in this warehouse than in an equivalent traditional design.
- The Herringbone-shaped layout (or commonly referred as Fishbone layout) combines the verti-cal picking rows of a traditional warehouse with a second set of horizontal picking rows, divided by a V-shaped diagonal alley crossing the entire warehouse. This simple modification to the typical warehouse design allows employees (e.g. a forklift driver) to increase travel speed between picking locations. Efficiency gains achieved through a layout reconfiguration would reduce picking cost up to 23% compared to an equivalent warehouse using a traditional configuration.
Reference
Aisle Design - Kevin Gue
LO 1, AC 1.1
NEW QUESTION # 80
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