CMA Final · Strategic Cost Management · Transportation
A firm has three plants (A, B, C) and three markets (D1, D2, D3). Unit costs (Rs) are A: 8, 5, 9; B: 6, 10, 7; C: 11, 12, 13. Under Vogel's Approximation Method, in which cell is the first allocation made?
VAM first picks the row or column with the largest penalty, which is column D2 with penalty 5 (the next-lowest cost 10 minus the lowest cost 5). The lowest cost in that column is Rs 5 at plant A, so the first allocation goes to A-D2.
- AA-D1
- BB-D1
- CA-D2Correct
- DC-D3
Explanation
Row penalties are A: 8-5 = 3, B: 7-6 = 1, C: 12-11 = 1. Column penalties are D1: 8-6 = 2, D2: 10-5 = 5, D3: 9-7 = 2. The highest penalty is 5 for column D2, and the cheapest cell in D2 is A-D2 at Rs 5.
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