Latest L4M7 Actual Free Exam Questions Updated 135 Questions
Free L4M7 Exam Braindumps certification guide Q&A
NEW QUESTION # 23
In the periodic review system, the order quantity is the same for each order. Is this statement true?
- A. No, the inventory position at each review point differs from each other
- B. No, the next order quantity must be larger than the previous one
- C. Yes, the order quantity should be equal to economic order quantity
- D. Yes, in periodic review system items are reviewed when the Kanban is triggered
Answer: A
Explanation:
Fixed-Time Period System (or Periodic Review system) is the inventory management system in which inventory is checked in fixed time periods, T, and the quantity ordered varies. The system also contains a target inventory level, R, which is restored when order received. The order quantity is calculated as:
Q = R - IP
where: Q = order quantity
R = target inventory level
IP = inventory position
Inventory position (IP) is equal to inventory on-hand plus quantity on order minus backorder (if any) The order quantity varies because the inventory position at each review point differs from each other.
LO 2, AC 2.3
NEW QUESTION # 24
Which of the following is an assumption of economic-order-quantity model?
- A. Demand, ordering costs, and carrying costs are uncertain
- B. No inventory stockouts occur
- C. The quantity ordered can vary at each reorder point
- D. The purchasing cost per unit is affected by the order quantity
Answer: B
Explanation:
Economic order quantity (EOQ) model is the method that provides the company with an order quantity. This order quantity figure is where the record holding costs and ordering costs are mini-mized. By using this model, the companies can minimize the costs associated with the ordering and inventory holding. In 1913, Ford W.
Harris developed this formula whereas R. H. Wilson is given credit for the application and in-depth analysis on this model.
If the economic order quantity model is applied, the following assumptions should be met:
- The rate of demand is constant, and total demand is known in advance.
- The ordering cost is constant.
- The unit price of inventory is constant, i.e., no discount is applied depending on order quantity.
- Delivery time is constant.
- Replacement of defective units is instantaneous.
- There is no safety stock level, i.e., the minimum stock level is zero.
- Restocking is made by the whole batch.
Because the demand and lead time are constant, no stockout events can occur.
Reference:
LO 2, AC 2.3
NEW QUESTION # 25
Which of the following lists all components, ingredients, and materials required to produce the final product?
- A. Master schedule
- B. Purchase order
- C. Engineering change notice
- 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 # 26
An organisation may incur additional costs in stockout events. Which of the following is an exam-ple of costs of inventory stockouts?
- A. The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease
- B. The costs of obsolescence and costs of insurance that change with the quantity of in-ventory held
- C. The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods
- D. The return forgone by investing capital in inventory rather than elsewhere
Answer: C
Explanation:
Stockout is a situation where an inventory item is not available when required. The costs associated with a stockout include the following:
- Lost of production output - there will be no production until the stockout is resolved (new stock is acquired). For factory operating 24/7 with no spare capacity, this lost output will not be able to be recovered.
- Costs of machine downtime and of overhead spread over a reduced level of output
- Costs of any action required to deal with the stockout...
- Loss of customer goodwill through inability to supply or late delivery
- Loss of sales or new orders
- Loss of market creditability
Reference:
LO 2, AC 2.2
NEW QUESTION # 27
The following are examples of scheduled maintenance except...
- A. Overhauling of machine
- B. Cleaning of tank
- C. Oil changes and regular servicing
- D. Repair signage damage from a recent storm
Answer: D
Explanation:
Scheduled maintenance is any repair and upkeep work performed within a set timeframe. It details when given maintenance tasks are performed and by whom. Scheduled maintenance may occur at repeating intervals or in response to a work request.
"Overhauling of machine" means that the machine is regularly checked and corrupted parts are replaced if needed.
"Cleaning of tank" and "Oil changes" also occur at time intervals as scheduled So the correct answer is "Repair signage damage from a recent storm" Reference:
LO 3, AC 3.1
NEW QUESTION # 28
Which is the best definition of reorder point?
- A. The level inventory at which an order must be made
- B. The point when one unit of stock remains in stock
- C. The point when stock reaches zero
- D. The point at which stock will fall to zero minus lead-time
Answer: A
Explanation:
Reorder point is the point either in time or in a process when the next order should be placed.
Reference:
LO 2, AC 2.3
NEW QUESTION # 29
GAP Ltd is a growing retail business. It spends a lot of money on buying stock for sale. However, the procurement process is still largely manual. This manual process contains a lot of tasks that are repeated for each procurement event and time consuming. The company management team decides to adopt procure-to-pay (P2P) software in order to eliminate duplicate activities and improve process efficiencies. Which type of cost is GAP targeting?
- A. Cost of stockouts
- B. Holding costs
- C. Acquisition costs
- D. Disposal costs
Answer: C
Explanation:
Costs of holding inventory include the following:
* Acquisition cost
* Inventory holding cost
* Costs of stock-outs
Acquisition costs follow the typical procure-to-pay model. Benefits of procure-to-Pay (P2P) software include:
- Vendor Management, which includes researching, selecting, engaging with, and evaluating the performance of suppliers who make up your supply chain.
- Purchase Requisition Workflows, or the formal process of creating and submitting a purchase requisition (PR) for approval to meet a specific business need.
- Purchase Order (PO) Workflows, covering the creation of a formal, detailed PO from the purchase requisition, including information on the quantity and quality of goods and services, as well as specific terms and conditions.
- Receiving, which includes the acceptance of physical goods (or review of quality and completion for services) and entering the accepted order into inventory, tracking, and accounting systems.
- Invoice Management, during which the invoice is compared to the original PO to verify pricing, quality, quantity, and terms have been met.
- Accounts Payable Workflows, wherein the accounts payable department processes the invoice for payment, submits the payment to the vendor, and reconciles any related financial entries in the accounting system.
The software is intended to help reduce the acquisition costs.
LO 2, AC 2.2
NEW QUESTION # 30
Assuming that all other factors are constant except one, the net present value of a capital expendi-ture increases when...?
- A. Net cash flow during a time period increases
- B. The discounted rate increases
- C. The initial cost of a project increases
- D. Cash outflow during a time period increases
Answer: A
Explanation:
Net present value (NPV) is the 'today' net value that deprives from 'future' cash flow of an invest-ment or a capital purchase.
The following formula is used to calculate NPV
Where:
Rt is the net cash flow (cash inflow - cash outflow) during the period t i is the discount rate t is the number of time periods As you can conclude from the above formula, the net present value increases when the numerators (net cash flows) increase and/or denominators (1+i) decrease. So the correct answer should be "Net cash flow during a time period increases" The purpose of this exercise is to help you identify the factors that influence the net present value and how to increase/decrease NPV in real-world scenario.
Reference:
- Net present value in capital expenditure
- CIPS study guide page 177
LO 3, AC 3.2
NEW QUESTION # 31
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.
Reference:
- MRP vs. MRP II: What's the Difference?
- CIPS study guide page 118-119
LO 2, AC 2.3
NEW QUESTION # 32
Among different types of costs associated with inventory, the opportunity cost of the investment tied up in inventory belongs to which of the following?
- A. Costs of stockouts
- B. Holding costs
- C. Acquisition costs
- D. Purchase price
Answer: B
Explanation:
Direct and indirect costs of holding inventory include the following:
- Acquisition costs
- Holding costs: There are 2 different types of holding costs: costs related to the value of the goods (including opportunity costs, costs of insurance, losses due to product deterioration, etc) and costs related to the physical characteristics of this inventory.
- Costs of stockouts
Reference:
LO 2, AC 2.2
NEW QUESTION # 33
Which of the following statements is true?
- A. Number of independent demand items may be derived from the forecast
- B. Car engine is an example of independent demand items in a car assembly plant
- C. Dependent demand items are not directly correlated with production rate
- D. All indirect supplies are independent demand items
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).
Independent demand is the requirement for stock item which is not directly related to, and is therefore independent of rate of production.
'Number of independent demand items may be derived from the forecast': Although independent demand is called thus, it can still be influenced by economic factors external to the demand-supply model such as general consumer sentiment and consumers' available disposal income. However, businesses that need to predict the number of products with independent demand needed to sate their customers have it easier than businesses that must calculate the demand for products with dependent demand because there are fewer factors to consider.
'Dependent demand items are not directly correlated with production rate': As mentioned above, dependent demand items are directly correlated with production rate.
'All indirect supplies are independent demand items': Though most indirect supplier are inde-pendent demand, some are determined by the production rate, i.e. energy consumption of a major machinery.
'Car engine is an example of independent demand items in a car assembly plant': Car engine is a component in car which is the finished good of a car assembly plant, it is a dependent demand item.
LO 2, AC 2.1
NEW QUESTION # 34
A manufacturer is making a plan for strategic safety stock. To do so, they must analyse the proba-bility of a stock out occurring and the cost impacts if it does. Which of the following are typical costs the manufacturer may incur in 'out of stock' event? Select TWO that apply.
- A. Costs for qualifying suppliers
- B. Extra costs for urgent transportation
- C. Cost of equipment downtime
- D. Costs of handling inventory
Answer: B,C
Explanation:
Costs of approving the requisition
Explanation:
The costs of stockouts - the costs of being out of inventory - include:
- Loss of production output
- Costs of idle time and of fixed overheads spread over a reduced level of output
- Costs of any action taken to deal with the stockout, such as buying from another stockist at an enhanced price, switching production, obtaining substitute materials
- Loss of customer goodwill due to the inability to supply or late delivery.
(Procurement and Supply Chain management - 9th Edition, K.
Lysons and B. Farrington, 2016) LO 2, AC 2.2
NEW QUESTION # 35
Extra units that are held in inventory to reduce the risks of stock-out are called...?
- A. Reorder point
- B. Safety stock
- C. Demand variance
- D. Just-in-time
Answer: B
Explanation:
The safety stock (or buffer stock) is the stock level that limits stock shortages due to unforeseen events (forecasts not in line with demand, longer than expected supply time, etc...) Demand variance is the degree to which the demand in a fixed period deviates from the average demand of the same period.
A reorder point is the unit quantity on hand that triggers the purchase of a predetermined amount of replenishment inventory.
The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules.
Reference:
LO 2, AC 2.1
NEW QUESTION # 36
A manager who is concerned about the environmental impact of packaging should do which of the following?
- A. Try to reduce the costs of packaging
- B. Adopt international environmental packaging standards
- C. Not use the packaging materials at all
- D. Purchase the packaging materials in bulk
Answer: B
Explanation:
In principle, use of any materials involves an environmental cost. Some packaging materials use a lot of natural resources and energy to produce. The journey taken by packaging from raw material to manufacturing and then to the initial user also incurs a 'carbon footprint'. The weight of packag-ing contributes to the fuel usage of vehicles while the volume used can add up to additional jour-neys or the use of larger vehicles. Finally, the reuse, return, disposal or recycling will also involve additional to the environmental cost.
In this question:
- 'Purchase
the packaging materials in bulk' may incur additional fuel and carbon footprint in delivering these materials
- 'Try to reduce the costs of packaging' may prompt the organisation to use less eco-friendly and cheap materials like polystyrene chips
- 'Not use the packaging materials at all' can increase the environmental performance of packag-ing activities, but it also harms the products to be delivered and may cause other environmental problems (i.e. spillage of toxic chemicals into the environment) So the correct answer should be: 'Adopt international environmental packaging standards'. The International Standards Organisation (ISO) has published several standards regarding packaging and environment, namely ISO 18601, ISO 18602, ISO 18603, ISO 18604, ISO 18605, ISO 18606.
Reference:
LO 1, AC 1.3
NEW QUESTION # 37
What is the different between gross material requirements plan (gross MRP) and a net material requirements plan (net MRP)?
- A. The net MRP includes the amount of inventory on hand, whereas the gross MRP does not
- B. The gross requirement doesn't take taxes into account, whereas the net requirement includes the tax considerations
- 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 # 38
Which of the following statements holds true about inventory holding costs?
- A. They always exceed total ordering costs
- B. They decline as the cost of the inventory item rises
- C. They depend upon the opportunity cost of tying up funds and the average value of the stock holding
- D. They are independent of the average stock level
Answer: C
Explanation:
Holding costs (carrying costs) are the costs associated with the storage and handling of physical stock. There are two different types of holding costs:
- Costs related to the value of the goods: financial costs (i.e. the interest on the working capital tied up in inventory, which may be the bank borrowing rate or the company's target for return on capital); cost of insurance; losses due to product deterioration; losses due to obsolescence and redundancy of inventory; losses due to theft, accidental damage etc.
- Costs related to the physical characteristics of the inventory include the following: storage space; power, heat and lighting of the store; movement equipment; labour costs; administration costs.
Reference:
LO 2, AC 2.2
NEW QUESTION # 39
To make loading/unloading more effective and efficient, which feature should be included in vehi-cle dock design?
- A. The dock platform is almost at the same level as the height of the trailer's rear platform
- B. Steeper slope will reduce the chance of errors and accidents
- C. 'Dual-use' docks are always the most efficient
- D. Vehicle docks only require a small area to ensure faster goods flow
Answer: A
Explanation:
Warehouse dock is a feature of warehouse design - used for unloading and loading vehicles. It is crucial to carefully design where they are externally located in a facility and choose the best type of dock depending on the available space.
In many cases efficient and effective loading and unloading is achieved by a dock design that places the loading and unloading vehicle' rear platform at the same height as the warehouse floor.
Slopes in docking areas must always be as small as possible: the gentler the slope, the less chance of errors and accidents. If a warehouse is going to be used by large volume vehicles, such as high cubes, it may be necessary to install special devices, such as hydraulically adjustable docks or ground level lift platforms.
Current trends indicate that vehicles that are longer and wider and have a greater volume will be increasingly common. Therefore, when planning the location of the docks, it would be useful to ensure that there is a large area for the approach, manoeuvring and build-up of large vehicles.
One option to increase the efficiency of the docks is to combine reception and dispatch into a single area (dual use). This solution drastically reduces costs and, above all, increases the use of handling equipment and personnel. However, if this is justified by the volume of material flows, there can also be separate access points for each function (some for reception and others for dispatch - 'sole use').
Reference:
- Warehouse docking areas - Interlake
- CIPS study guide page 13
LO 1, AC 1.1
NEW QUESTION # 40
Which of the following correctly describes the triple bottom line?
- A. Professional, Planet, Profit
- B. People, Planet, Project
- C. People, Planet, Profit
- D. People, Product, Profit
Answer: C
Explanation:
The triple bottom line is a sustainability framework that examines a company's social, environment, and economic impact (or People, Planet, Profit).
Reference:
- 25 Years Ago I Coined the Phrase "Triple Bottom Line." Here's Why It's Time to Rethink It.
- CIPS study guide page 202
LO 3, AC 3.3
NEW QUESTION # 41
The ABC approach involves classifying inventory items by unit cost, with expensive items classi-fied as 'A' items and low cost items classified as 'C' items. Is this statement true?
- A. Yes, 'A' items represent approximately 20% of total unit prices
- B. No, ABC analysis considers the usage of each inventory item
- C. Yes, 'C' items with the lowest unit prices are the tail spends
- D. No, ABC analysis considers the supply risks associated with an inventory item
Answer: B
Explanation:
ABC analysis is an approach for classifying inventory items based on the items' consumption val-ues. Consumption value is the total value of an item consumed over a specified time period, for example a year. The approach is based on the Pareto principle to help manage what matters and is applied in this context:
- A items are goods where annual consumption value is the highest. Applying the Pareto principle (also referred to as the 80/20 rule where 80 percent of the output is determined by 20 percent of the input), they comprise a relatively small number of items but have a relatively high consumption value. So it's logical that analysis and control of this class is relatively intense, since there is the greatest potential to reduce costs or losses.
- B items are interclass items. Their consumption values are lower than A items but higher than C items. A key point of having this interclass group is to watch items close to A item and C item classes that would alter their stock management policies if they drift closer to class A or class C. Stock management is itself a cost. So there needs to be a balance between controls to protect the asset class and the value at risk of loss, or the cost of analysis and the potential value returned by reducing class costs. So, the scope of this class and the inventory management policies are determined by the estimated cost-benefit of class cost reduction, and loss control systems and processes.
- C items have the lowest consumption value. This class has a relatively high proportion of the total number of lines but with relatively low consumption values. Logically, it's not usually cost-effective to deploy tight inventory controls, as the value at risk of significant loss is relatively low and the cost of analysis would typically yield relatively low returns.
LO 2, AC 2.1
NEW QUESTION # 42
Which of the following best describes category 'A' in ABC analysis in inventory management?
- A. Items with high uncertainty
- B. Items that represent approximately 15% of total value
- C. Items with low uncertainty
- D. Items with high values
Answer: D
Explanation:
ABC classifications are applied to stock and its management is based loosely on the Pareto princi-ple, better known as the 80/20 rule.
The likely outcome of analysis of inventory (value importance):
- Category A - about 20% of the stock items account for about 80% of the total inventory value. Items in category A have the highest value.
- Category B - about 30% of items account for about 15% of total inventory value
- Category C - the remaining 50% of items account for 5% of the total inventory value Reference:
LO 2, AC 2.1
NEW QUESTION # 43
Which of the following are most likely to be direct benefits of applying RFID technology? Select TWO that apply
- A. Large information capacity
- B. Being able to work in harsh conditions without any supports
- C. Being able to work in 1km range or above
- D. Identifying product defects
- E. Multiple items tracking
Answer: A,E
Explanation:
RFID tags are the small devices that can be embedded in labels or attached to tags which work with radio transmitters and/or receivers to identify themselves.
RFID tags can be used to do the following:
- Track individual items
- Track boxes of products, cages of products and pallets
- Track containers with multiple loads
- Locate equipment within a building
- Trigger alarms should equipment or stock be removed without authorisation.
RFID devices have a very small integrated circuit incorporating a small memory capability - many are smaller than 2mm square and 2mm thick. Despite its size, many can hold 2000 characters of data.
RFID operating rage depends on the radio frequency used, receiver capability and the environment. Some tags are only readable from under 1m, others can have a 100m range.
RFID tags and labels are very specific to the type of material and size of your assets. For example, metal will deactivate the RFID antenna and the tag will not transmit at all. Using RFID on metal requires a special type of tag with an RFID block to prevent interference with the antenna. Liquid products can also affect the reliability of the RFID signal. To use RFID tags in specific environ-ments, some technologies are needed to support them.
Reference:
LO 1, AC 1.2
NEW QUESTION # 44
XYZ Inc opens a tender to purchase new forklift trucks for their new established warehouse. In the final round, there are two suppliers remain who offer two different bids. Supplier A's bid has high initial investment. After calculating the net present value, the NPV in year five is positive. On the other hand, supplier B's bid has low purchase price, with the NPV in year five is negative. If the NPV is the sole selection criterion, XYZ Inc should select the bid which has...?
- A. The lowest NPV
- B. Negative NPV
- C. Zero NPV
- D. Positive NPV
Answer: D
Explanation:
Net present value (NPV) is the 'today' net value that deprives from 'future' cash flow of an invest-ment or a capital purchase. Net Present Value is a helpful tool for assessing the total lifetime value of an investment. Procurement professionals or investors can base on this value to make decision to achieve value for money. Generally, an organisation should select the offer which has the highest NPV among their options. Preferably, the NPV of an capital investment should be positive, which means the investment eventually adds value to the business.
Reference:
LO 3, AC 3.2
NEW QUESTION # 45
A supplier delivers large quantities of inventory to its customer's store, but only charges for the goods as and when they are used. This can be described as...?
- A. Multi-echelon stock
- B. Consignment stock
- C. Components inventory
- D. Multi-stage inventory
Answer: B
Explanation:
Consignment stock is stock legally owned by one party, but held by another, meaning that the risk and rewards regarding to the said stock remains with the first party while the second party is re-sponsible for distribution or retail operations. Ownership of consignment stock is passed only when the stock is used (issued or sold in the case of a shop). Unused stock in a warehouse may be returned to the supplier when it concerns standard manufactured products. With customer specific items, agreements concerning returning products, should be negotiated.
Reference:
LO 1, AC 1.1
NEW QUESTION # 46
......
The CIPS L4M7 Exam is recognized worldwide as a mark of excellence in the field of asset management. The certification demonstrates that the candidate has the necessary knowledge and skills to manage assets effectively and efficiently, thereby delivering value to the organization. The certification is highly valued by employers, who are looking for professionals who can manage their assets effectively and efficiently, thereby reducing costs and maximizing returns.
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