CIPS L4M7 Exam Practice Test Instant Access

Question 1

A construction organization requires specialist equipment for digging deep foundations. Which of the following circumstances would result in the hire of equipment rather than leasing it?

AThe finance available and the potential profits available on the eventual sale of the leased equipment compared to hire costs

BThe expected frequency of use, the storage available, and the lease cost of the equipment compared to hiring it

CThe subjective assessment of multiple factors for both hire and lease by the directors

DThe results of a discounted cost analysis using comparative weekly payments for both hire and lease options

Answer : B

Hiring is often preferred when:

Frequency of use is low: If equipment is only needed occasionally, hiring is more economical.

Storage is unavailable: Leased equipment needs storage, which incurs additional costs.

Lease costs exceed hiring costs for limited use.

Whole-life asset management emphasizes cost-efficient solutions, and hiring equipment for limited use reduces unnecessary expenses compared to leasing or purchasing.

Question 2

A warehouse manager is evaluating the use of Automated Guided Vehicles (AGVs) within a non-repetitive task environment. After reviewing their use, the manager decided to invest in a number of AGVs. Was this decision correct?

AYes, as it will reduce the costs of labor by replacing a human worker

BYes, as it will increase stock picking accuracy and productivity

CNo, as they are only suitable for use in repetitive task environments

DNo, as it commits the organization to a large capital cost

Answer : C

Automated Guided Vehicles (AGVs) are best suited for environments with repetitive tasks, such as fixed routes in production lines. In non-repetitive tasks, their efficiency and effectiveness decrease. Whole-life asset management prioritizes choosing automation that aligns with operational needs, ensuring cost-effectiveness and suitability for the given tasks.

Question 3

A procurement manager (PM) is purchasing a piece of capital equipment that requires toxic chemicals in its operation. The PM has included end-of-life packaging costs in the whole-life costing calculation. Was it appropriate to include this?

AYes, because the chemicals will need to be packaged and labeled for correct disposal

BNo, because the disposal of chemicals at the end of life does not impact the whole-life cost

CYes, because it is better to overestimate costs upfront just in case

DNo, because the chemicals can be disposed of without any cost

Answer : A

Including end-of-life packaging costs is essential when dealing with hazardous materials, as they often require special packaging and labeling for safe disposal. Whole-life asset management considers disposal costs in the total lifecycle cost to ensure compliance with regulations and prevent environmental harm.

Question 4

Which of the following is an acquisition cost under the concept of the total cost of ownership?

AInstallation and commissioning cost

BConsumables and energy cost

CServicing and repair cost

DDown time and overhaul cost

Answer : A

Acquisition costs include all expenses incurred to bring an asset to its operational state, such as installation and commissioning. These costs are essential to the total cost of ownership (TCO) in whole-life asset management, helping organizations understand the full initial investment required to make the asset usable.

Question 5

Which of the following would be an impact of low stock in the supply chain?

Warehouse space would all be full with excess stock

There may be delays and higher costs to fulfill supply

Stock may not be available at times of high demand

Lead times would reduce and purchase costs would fall

A2 and 3 only

B1 and 3 only

C2 and 4 only

D1 and 4 only

Answer : A

Low stock levels can lead to:

Delays and higher fulfillment costs: When stock is insufficient, emergency orders and expedited shipping may be necessary, increasing costs.

Stockouts during high demand: Insufficient inventory can lead to missed sales opportunities, negatively impacting customer satisfaction.

Whole-life asset management seeks to balance inventory levels to avoid stockouts while minimizing holding costs.

Question 6

A procurement professional is working with a colleague from finance because the organization has been spending more money recently on inventory items. This is impacting the organization's working capital. In particular, they are concerned that average inventory levels have increased significantly year-on-year. Which of the following should they calculate to help in their investigation?

ARate of stock turn

BAge of receivables

CProfit margin

DCash flow forecast

Answer : A

The rate of stock turn (inventory turnover ratio) measures how often inventory is sold and replaced over a period. A lower turnover ratio indicates that inventory is sitting longer, tying up working capital. Calculating this rate helps procurement and finance assess inventory management efficiency, a key focus in whole-life asset management for optimizing working capital and reducing holding costs.

Question 7

Which of the following are advantages of a multi-story warehouse compared to a single-story warehouse?

Heavier, frequently moved items will always be stored on the upper floor of a multi-story warehouse

Order tracking technology will be more effective and efficient in a multi-story warehouse

There are more options for the storage of inventory by volume, weight, and frequency of movement in a multi-story warehouse

The cost of land is likely to be less for a multi-story warehouse compared to a single-story warehouse for a similar product volume

A1 and 3 only

B1 and 2 only

C2 and 3 only

D3 and 4 only

Answer : D

Multi-story warehouses provide:

Flexible storage options for various inventory types, based on volume, weight, and movement frequency.

Cost savings on land: As vertical space is utilized, less land is needed for the same storage volume, potentially reducing property expenses.

Whole-life asset management considers these factors to maximize storage efficiency while managing real estate costs.

CIPS L4M7 Whole Life Asset Management Exam Practice Test