Free L4M7 Practice Test Questions and Answers (2026)

The most common subjective forecasting techniques include the following:

- Market surveys

- Employee surveys

- Expert knowledge (Delphi method is a method using expert knowledge)

- Test marketing

Cycle counting is a periodic analysis of inventory in a storage location which is conducted through the

counting of samples instead of physically counting the entire inventory available, so as to quickly

have an accurate estimate of the inventory available without causing a stop to the day to day

working as is the case with physically counting every unit.

The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of fac-tor

sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

Weighted moving averages assign a heavier weighting to more current data points since they are

more relevant than data points in the distant past. The sum of the weighting should add up to 1 (or

100 percent).

Reference: CIPS study guide page 109-111

LO 2, AC 2.3

The amount of closing stock (properly valued) is used to arrive at the cost of goods sold in a periodic

inventory system with the following calculation:

Opening stock + Purchases - Closing stock = Cost of goods sold

Reference:

- CIPS study guide page 130-131

- Closing stock definition

LO 2, AC 2.3

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LO 2, AC 2.3

If the planning and mitigation measures fail and redundant or obsolete stock is identified, it needs to

be removed from the current inventory location as quickly as possible. There are some methods to

deal with these types of stock. The worst case scenario is disposal to landfill, which is inadvisable if it

can be avoided, both from environment point of view and the financial costs of such disposal.

For example, the problem of obsolete pesticides remains extremely serious and urgent. Many of the

stocks identified continue to deteriorate thereby giving rise to an ever escalating source of severe

pollution and posing a threat to human health, the environment and development in particular. To

reduce the impact of obsolete pesticides on environment, FAO initiated a project in Yemen in which a

total of 262 tonnes of obsolete pesticides were removed from 20 different sites and successfully

disposed of between March and June 1996. The major field operation was completed in six weeks

during which period almost all obsolete pesticides were brought to a central location and

subsequently shipped to the United Kingdom for incineration.

Reference: CIPS study guide page 89

LO 2, AC 2.1

Minimum open aisle width for standard counterbalance forklift is 10.5-13.1 ft. You can look at the

minimum aisle width for different equipment here, or calculate yourself with an instruction here.

LO 1, AC 1.3

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: CIPS study guide page 84-85

LO 2, AC 2.1

ABC analysis is applied to stock and its management. It is based loosely on the Pareto principles,

better known as 80/20 rule. Pareto principle is the theory that 80% of outcome results from 20% of

inputs. For example, 80% of sales are to the top 20% of customers; 80% of spend on inventory is

accounted for by the top 20% of stock items.

The ABC concept is based on Pareto's law. The following steps are carried out for the ABC analy-sis.

- Step 1: Compute the annual usage value for every item in the sample by multiplying the annual

requirements by the cost per unit.

- Step 2: Arrange the items in descending order of the usage value calculated above.

- Step 3: Make a cumulative total of the number of items and the usage value.

- Step 4: Convert the cumulative total of the number of items and usage values into a percentage of

their grand totals.

- Step 5: Draw a graph connecting cumulative % items and cumulative % usage value. The graph is

divided approximately into three segments, where the curve sharply changes its shape. This

indicates the three segments A, B and C.

LO 2, AC 2.1

Delphi method is a structured forecasting technique using a panel of experts and a number of rounds

of questioning. Responses are shared after each round and the experts encouraged to recon-sider

their own responses. It is intended to achieve a consensus view.

Reference: CIPS study guide 109-111

LO 2, AC 2.3

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

The Harmonized Commodity Description and Coding System, also known as the Harmonized System

(HS) of tariff nomenclature is an internationally standardized system of names and numbers to

classify traded products. It came into effect in 1988 and has since been developed and maintained by

the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an

independent intergovernmental organization based in Brussels, Belgium, with over 200 member

countries.

The Global Trade Item Number (GTIN) is an identifier for trade items, developed by GS1. Such

identifiers are used to look up product information in a database (often by entering the number

through a barcode scanner pointed at an actual product) which may belong to a retailer,

manufacturer, collector, researcher, or other entity.

The Global Location Number can be used by companies to identify their locations, giving them

complete flexibility to identify any type or level of location required.

The International Mobile Equipment Identity (IMEI) is a number, usually unique, to identify 3GPP and

iDEN mobile phones, as well as some satellite phones.

Reference: CIPS study guide page 39

LO 1, AC 1.2

The triple bottom line is a sustainability framework that examines a company’s social, environment,

and economic impact (or People, Planet, Profit). ASI Ltd practice would reduce the waste into the

environment as well as keep the business more profitable. So the correct answer should be Planet

and 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

Direct and indirect costs of holding inventory include the following:

1. Acquisition costs

2. Holding costs (carrying costs) are the costs associated with the storage and handling of physical

stock. There are two different types of holding costs:

a. 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.

b. 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.

3. Costs of stockouts

Reference: CIPS study guide page 100-101

LO 2, AC 2.2

Reorder point is the point either in time or in a process when the next order should be placed.

Reference: CIPS study guide page 113

LO 2, AC 2.3

Direct and indirect costs of holding inventory include the following:

- Acquisition costs: preparing the requisition, supplier selection and approvals, time and costs of the

procurement process, etc.

- Holding costs

- Costs of stockouts

LO 2, AC 2.2

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

Possible solutions to the high irregular or seasonal demand problems are listed below:

• Take advantage of the height of the warehouse

- Mezzanine floor

- High racking system (increase storage capacity but require high-reach material handling equip-

ment)

• Eliminate dead stock or inventory

• Improve material flow

• Improve storage location method

• Consider using aisle space during demand peak

• Narrow aisles between racks (require narrow handling equipment)

• Carousel-type storage system

• Auto-storage and retrievals system (ASRS)

Reference: CIPS study guide page 22

LO 1, AC 1.1

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. 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.

In this scenario, the new drug is finished good which is dependent on the demand of the market, and

the firm needs to forecast before initiating the production process. The item is independent from

rate of production, therefore, it must be independent demand item.

Reference: CIPS study guide page 95-98

LO 2, AC 2.1

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 imprest system is a form of financial accounting system. The most common imprest system is the

petty cash system. The base characteristic of an imprest system is that a fixed amount is re-served,

which after a certain period of time or when circumstances require, because money was spent, it will

be replenished.

So the correct answer should be "Items are reviewed as part of an imprest system"

LO 2, AC 2.3

In management accounting, reorder level (or reorder point) is the inventory level at which a com-

pany would place a new order or start a new manufacturing run.

Reorder level depends on a company’s work-order lead time and its demand during that time and

whether the company maintain a safety stock.

If a company maintains a safety stock, reorder level calculation changes are follows:

Reorder Level = Average Demand × Lead Time + Safety Stock

Reference: CIPS study guide page 112-114

LO 2, AC 2.3

Dependent demand items rely on the internal production requirements of an organization. These

items:

Depend on user department production levels: Demand is driven by the needs of the production

line.

Can be managed using JIT systems: Just-in-Time inventory helps optimize stock levels based on

immediate production needs, reducing holding costs and minimizing waste.

Dependent demand items differ from independent demand items, where demand is customer-

driven rather than production-driven, emphasizing demand predictability and timely procurement.