L2M5 Paper 1

✅ Correct Answer: Opening stock

📌 Explanation
Opening stock is the value of inventory an organisation already holds at the very start of an accounting period. It carries over from the previous period and becomes the basis for calculating the cost of goods used.

❌ Why the other options are wrong:
Work in progress — items still being made, not stock held at period start.
Safety stock — a buffer for uncertainty, not a period-opening measure.
Finished goods — completed items ready for sale, a different classification.

📋 LO: 1.1 — Identify the classifications of different types of inventory
📑 Indicative content: opening stock, work in progress, safety stock, finished goods

✅ Correct Answer: Work in progress

📌 Explanation
Work in progress (WIP) covers materials that have entered production but are not yet finished. Partly assembled products on the line sit between raw materials and finished goods.

❌ Why the other options are wrong:
Finished goods — completed items ready for sale, not still on the line.
Raw materials — inputs not yet worked on, so not partly assembled.
Opening stock — the value of stock held at the start of a period, not a production stage.

📋 LO: 1.1 — Identify the classifications of different types of inventory
📑 Indicative content: opening stock, work in progress, safety stock, finished goods

✅ Correct Answer: Safety stock

📌 Explanation
Safety stock is a buffer held above normal requirements to protect against uncertainty in demand or supply. It reduces the risk of a stock-out when demand spikes or deliveries are late.

❌ Why the other options are wrong:
Work in progress — unfinished items in production, not a buffer.
Obsolescent stock — items losing value or use, not a planned buffer.
Opening stock — the value of stock at the start of a period.

📋 LO: 1.1 — Identify the classifications of different types of inventory
📑 Indicative content: opening stock, work in progress, safety stock, finished goods

✅ Correct Answer: Storage and warehousing costs; Insurance of held stock

📌 Explanation
Direct holding costs are incurred straightforwardly because stock is kept. Renting or running the warehouse space and insuring the goods against loss or damage are clear, traceable holding costs.

❌ Why the other options are wrong:
Cost of the sales team — a selling expense, not a cost of holding stock.
Supplier's delivery vehicle fuel — a transport cost borne in delivery, not in holding.

📋 LO: 1.2 — Identify the direct and indirect costs of holding inventory
📑 Indicative content: direct and indirect holding costs

✅ Correct Answer: Capital tied up in stock that could be invested elsewhere

📌 Explanation
An indirect holding cost is not a cash bill for storage but the opportunity cost of money locked up in inventory. That capital could earn a return if used elsewhere in the business.

❌ Why the other options are wrong:
Rent paid for the storage warehouse — a direct, traceable holding cost.
Insurance premium on stock — a direct cost of protecting held stock.
Wages of warehouse staff — a direct cost of operating the store.

📋 LO: 1.2 — Identify the direct and indirect costs of holding inventory
📑 Indicative content: direct and indirect holding costs

✅ Correct Answer: Economic Order Quantity (EOQ)

📌 Explanation
The Economic Order Quantity finds the order size where combined ordering and holding costs are lowest. It balances buying in larger batches against the cost of storing extra stock.

❌ Why the other options are wrong:
Just in Time — aims to cut stock by timing deliveries to need, not to compute an order size.
ABC analysis — ranks items by value to prioritise control, not order quantity.
Bar coding — a data-capture aid, not a costing calculation.

📋 LO: 1.3 — Identify techniques associated with inventory control
📑 Indicative content: re-order quantities; re-order levels

✅ Correct Answer: Re-order level

📌 Explanation
The re-order level is the stock quantity at which a replenishment order is raised. It is set high enough to cover expected demand during the supplier's lead time.

❌ Why the other options are wrong:
Safety stock — the buffer held below normal use, not the trigger point itself.
Economic order quantity — how much to order, not when to order.
Lead time — the delay between ordering and receiving, not a stock quantity.

📋 LO: 1.3 — Identify techniques associated with inventory control
📑 Indicative content: re-order levels

✅ Correct Answer: Bill of lading

📌 Explanation
A bill of lading is a transport document that acts as a receipt and contract for shipped goods. It is not a method of controlling stock levels, so it is the odd one out here.

❌ Why the other options are wrong:
Material Requirements Planning (MRP) — a genuine technique that plans materials from demand.
Just in Time (JIT) — a genuine technique that times supply to need.
Bar coding — a genuine aid for tracking and controlling stock.

📋 LO: 1.3 — Identify techniques associated with inventory control
📑 Indicative content: MRP and MRPII; Just in Time (JIT); bar coding

✅ Correct Answer: Forklift truck

📌 Explanation
Materials handling equipment moves and lifts goods within a store. A forklift truck is a common example, used to raise and transport palletised loads around the warehouse.

❌ Why the other options are wrong:
Purchase order — a document requesting goods, not handling equipment.
Sales invoice — a billing document, not equipment.
Delivery schedule — a plan of deliveries, not a handling device.

📋 LO: 1.4 — Identify the key aspects associated with the handling, packaging and storage of supplies
📑 Indicative content: materials handling equipment

✅ Correct Answer: Palletisation

📌 Explanation
Palletisation groups goods onto a pallet so they can be handled and moved together as one unit load. This speeds handling and makes storage and transport more efficient.

❌ Why the other options are wrong:
Bar coding — labels items for tracking, not for forming unit loads.
Forecasting — predicts future demand, unrelated to stacking goods.
Expediting — chasing deliveries to keep them on time, not a handling method.

📋 LO: 1.4 — Identify the key aspects associated with the handling, packaging and storage of supplies
📑 Indicative content: palletisation and unit loads

✅ Correct Answer: Efficient flow of inventory through the store

📌 Explanation
A key principle of good warehousing is enabling stock to flow smoothly from receipt to dispatch. An efficient layout reduces handling, delays and wasted movement.

❌ Why the other options are wrong:
Higher insurance premiums — an added cost, not a design goal.
More obsolescent stock — a problem to avoid, not an aim.
Longer order lead times — slower service, the opposite of the objective.

📋 LO: 2.1 — Identify the key principles of stores and warehousing facilities
📑 Indicative content: effective and efficient flows of inventory

✅ Correct Answer: Maximising the amount of obsolete stock held

📌 Explanation
Effective warehousing seeks to reduce waste and cost, so deliberately holding more obsolete stock runs against every principle. The other three are genuine aims of good store management.

❌ Why the other options are wrong:
Optimising use of space — a genuine principle that lowers cost.
Ensuring efficient stock flow — a genuine principle for smooth movement.
Reducing life-cycle costs — a genuine principle across the store's life.

📋 LO: 2.1 — Identify the key principles of stores and warehousing facilities
📑 Indicative content: reduction of life-cycle costs; space optimisation

✅ Correct Answer: Road

📌 Explanation
Road transport can reach almost any address, making it well suited to flexible door-to-door delivery over shorter distances. It avoids the transfers that other modes often need.

❌ Why the other options are wrong:
Sea — confined to ports, so it needs onward transport at each end.
Pipeline — fixed and limited to specific liquids or gases.
Rail — tied to fixed track and stations, reducing door-to-door flexibility.

📋 LO: 2.2 — Identify the strengths and weaknesses associated with modes of freight transportation
📑 Indicative content: road transport

✅ Correct Answer: Rail

📌 Explanation
Rail can carry large, heavy overland loads economically, which is a key strength. Its main weakness is dependence on fixed track and stations, limiting where goods can be picked up or dropped.

❌ Why the other options are wrong:
Air — fast but costly and poorly suited to heavy bulk cargo.
Road — flexible but not confined to fixed track routes.
Pipeline — limited to specific fluids, not general bulk goods.

📋 LO: 2.2 — Identify the strengths and weaknesses associated with modes of freight transportation
📑 Indicative content: rail transport

✅ Correct Answer: Air

📌 Explanation
Air freight offers the fastest transit over long distances, a clear strength for urgent goods. Its weakness is high cost per unit, so it is usually reserved for high-value or time-critical items.

❌ Why the other options are wrong:
Sea — low cost but slow, the opposite trade-off to air.
Rail — economical overland but slower than air.
Road — flexible but not the fastest over long distances.

📋 LO: 2.2 — Identify the strengths and weaknesses associated with modes of freight transportation
📑 Indicative content: air transport

✅ Correct Answer: E terms (for example EXW)

📌 Explanation
E-group terms, such as Ex Works (EXW), place minimum obligation on the seller. The buyer collects the goods at the seller's premises and bears almost all transport risk and cost from there.

❌ Why the other options are wrong:
D terms — the seller carries risk right up to the destination.
C terms — the seller arranges and pays main carriage.
F terms — the seller delivers to a carrier, not the buyer collecting at the works.

📋 LO: 2.3 — Identify types of Incoterms in international logistics
📑 Indicative content: E, F, C and D terms

✅ Correct Answer: The buyer

📌 Explanation
Under F terms the seller delivers the goods to a carrier, but the buyer arranges and pays for the main international carriage. Cost and risk pass to the buyer once the goods are handed over.

❌ Why the other options are wrong:
The seller — only delivers to the carrier; it does not pay main carriage under F terms.
The carrier — moves the goods but does not bear the contractual cost.
The insurer — covers risk only, not the carriage arrangement.

📋 LO: 2.3 — Identify types of Incoterms in international logistics
📑 Indicative content: E, F, C and D terms

✅ Correct Answer: To ensure goods lawfully clear customs and avoid penalties

📌 Explanation
Complying with import and export legislation lets goods pass customs legally and protects the buyer from fines, seizures or delays. It is a legal duty, not an optional extra.

❌ Why the other options are wrong:
To increase holding costs — compliance is not aimed at raising costs.
To avoid using Incoterms — Incoterms are still used regardless of regulation.
To remove the need for documentation — compliance usually requires more documents, not fewer.

📋 LO: 2.4 — Identify legislative regulations that affect international sourcing
📑 Indicative content: ensuring compliance with legislation and regulations for international supplies

✅ Correct Answer: The Single Administrative Document (SAD)

📌 Explanation
The Single Administrative Document (SAD) is a standard customs declaration used for goods crossing borders. It gathers the key information customs authorities need in one form.

❌ Why the other options are wrong:
The purchase requisition — an internal request to buy, not a customs declaration.
The stock ledger — an internal record of stock, not a border document.
The re-order card — a stock-control prompt, not used at customs.

📋 LO: 2.5 — Describe the documentation that is used in transportation of supplies
📑 Indicative content: the single administrative document (SAD)

✅ Correct Answer: Bill of lading; Consignment note

📌 Explanation
Transport documents accompany goods in transit. A bill of lading is a receipt and contract for shipped goods, and a consignment note records the details of a road or rail delivery.

❌ Why the other options are wrong:
Economic order quantity — an ordering calculation, not a transport document.
ABC analysis — a stock-ranking technique, not a document carried with goods.

📋 LO: 2.5 — Describe the documentation that is used in transportation of supplies
📑 Indicative content: waybill, consignment notes, bill of lading

✅ Correct Answer: Lost sales and dissatisfied customers

📌 Explanation
When stock runs out, orders cannot be filled, leading to lost sales and unhappy customers. These are the most immediate and damaging costs of a stock-out.

❌ Why the other options are wrong:
Lower warehouse rent — a saving, not a cost of running out of stock.
Reduced insurance premiums — again a saving, not a stock-out cost.
Increased bulk discounts — a benefit of buying more, unrelated to a shortage.

📋 LO: 3.1 — Explain the assessment of costs of inventory and the cost of stock-outs
📑 Indicative content: the cost of a stock-out

✅ Correct Answer: Reduce the risk of over-supply and stock-outs

📌 Explanation
Monitoring inventory levels lets an organisation act before stock runs too low or piles up. This keeps supply matched to demand, mitigating both over-supply and stock-out risk.

❌ Why the other options are wrong:
Increase obsolescent stock — monitoring aims to prevent this, not cause it.
Remove the need for forecasting — monitoring supports forecasting rather than replacing it.
Raise holding costs deliberately — the goal is to control, not inflate, costs.

📋 LO: 3.1 — Explain the assessment of costs of inventory and the cost of stock-outs
📑 Indicative content: monitoring inventory levels to mitigate over-supply and minimise stock-out risk

✅ Correct Answer: Problem-solving

📌 Explanation
Expediting often involves problem-solving: finding why a delivery is late and agreeing corrective action with the supplier to get it back on track.

❌ Why the other options are wrong:
Palletisation — a handling method for forming unit loads.
Bar coding — a tracking aid, not a way of resolving delays.
Certificate of origin — a trade document, not a problem-solving activity.

📋 LO: 3.2 — Explain the planning process associated with expediting delivery
📑 Indicative content: problem-solving techniques

✅ Correct Answer: Milestones

📌 Explanation
Milestones are planned checkpoints that mark important stages towards delivery. Tracking them lets the buyer confirm progress and spot slippage early in the expediting process.

❌ Why the other options are wrong:
Incoterms — rules on delivery responsibility, not schedule checkpoints.
Unit loads — goods grouped for handling, unrelated to planning stages.
Stock-outs — shortages of stock, not planning markers.

📋 LO: 3.2 — Explain the planning process associated with expediting delivery
📑 Indicative content: planning milestones and activities

✅ Correct Answer: Yes, because timely payment supports supplier goodwill and continuity of supply

📌 Explanation
Paying suppliers as agreed builds trust and goodwill, encouraging suppliers to keep serving the buyer reliably. It protects continuity of supply and the wider relationship.

❌ Why the other options are wrong:
Yes, because it removes the need to track cash flow — payment still has to be tracked against cash flow.
No, because payment timing has no effect on suppliers — timing strongly affects supplier goodwill.
No, because late payment always reduces total costs — late payment risks harm, not guaranteed savings.

📋 LO: 3.3 — Explain the significance of payment to suppliers and cash flow
📑 Indicative content: significance of timely payment to suppliers and cash flow