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| Section | Objectives |
|---|---|
| Topic 1: Disposal and End-of-Life Management | - Asset disposal strategies
|
| Topic 2: Risk and Value Management | - Managing asset-related risk
|
| Topic 3: Asset Acquisition and Procurement | - Sourcing and procurement of assets
|
| Topic 4: Understanding Asset Management | - Principles of whole life asset management
|
| Topic 5: Operation and Maintenance | - Asset performance and reliability
|
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NEW QUESTION # 145
A company has obsolete inventories and it must write off these inventories. How does writing off inventories impact on the company's financial statements?
1. Stock increases
2. Stock decreases
3. Profit increases
4. Profit decreases
Answer: B
Explanation:
An inventory write-off is a process of removing from the general ledger any inventory that has no value.
Using the direct write-off method, a business will record a credit to the inventory asset account and a debit to the expense account. For example, say a company with $100,000 worth of inventory decides to write off
$10,000 in inventory at the end of the year. First, the firm will credit the inventory account with the value of the write-off to reduce the balance. The value of the gross inventory will be reduced as such: $100,000 -
$10,000 = $90,000. Next, the inventory write-off expense account will be increased with a debit to reflect the loss.
The expense account is reflected in the income statement, reducing the firm's net income and thus its retained earnings. A decrease in retained earnings translates into a corresponding decrease in the shareholders' equity section of the balance sheet.
If the inventory write-off is immaterial, a business will often charge the inventory write-off to the cost of goods sold (COGS) account. The problem with charging the amount to the COGS account is that it distorts the gross margin of the business, as there is no corresponding revenue entered for the sale of the product.
Most inventory write-offs are small, annual expenses. A large inventory write-off (such as one caused by a warehouse fire) may be categorized as a non-recurring loss.
Reference:
- CIPS study guide page 86-90
- Inventory Write-Off
LO 2, AC 2.1
NEW QUESTION # 146
Which of the following can replace pallets as bases for unit loads but they require push pull acces-sories to retrieve or discharge unit load?
Answer: C
Explanation:
The system of slip sheet load handling involves the use of a thin sheet of material, the slip sheet, as a base on which items are assembled as a unit load for handling, storage, and transport. The slip sheet is used in conjunction with a pallet, if desired, at certain stages in the distribution cycle. If all lift trucks in the cycle are equipped with the proper attachment, an appropriate slip sheet is the only material handling base required.
Slip sheet requires special push pull accessories and usually use thin and wide forks.
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Skids are generally described as single-deck pallets and do not have bottom flatted layer which makes them less bulky and cheaper than conventional pallets but also less universal in their use.
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Shrink wrap, also referred to as shrink film or shrink wrap, is a versatile polymer material used for the packaging of finished goods. Heat is applied to the film - by either a conveyor heat tunnel or an electric or gas heat gun - which catalyzes the film to shrink tightly around the item placed within. This process results in a clear, durable barrier of protection around the product.
Post pallets have a simple metal structure with four uprights and substantial feat to take the load. These may be free standing, but many are designed for the feet to interlock with the posts of another post pallet so that the stack can be created.
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NEW QUESTION # 147
Which of the following statements holds true about inventory holding costs?
Answer: B
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: CIPS study guide page 100-101
LO 2, AC 2.2
NEW QUESTION # 148
In the periodic review system, the order quantity is the same for each order. Is this statement true?
Answer: D
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.
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LO 2, AC 2.3
NEW QUESTION # 149
Which of the following factors can be considered when selecting the location of a new warehouse facility?
Select THREE that apply.
* Cost of land
* Product pricing
* The nature of the items to be stored
* Access to transport infrastructure
* The reputation of the company
* Profit margin
Answer: C
Explanation:
Warehouse location selection depends on:
* Land cost: Directly affects budget planning and long-term operational expenses.
* Nature of items to be stored: Determines special requirements (e.g., climate control).
* Access to transport: Proximity to transport hubs reduces logistics costs and improves efficiency.
These considerations are critical for effective whole-life asset management, optimizing operational costs and logistics.
NEW QUESTION # 150
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