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CMA Intermediate · Operations Management and Strategic Management · Transportation

Three warehouses have supplies of 50, 40 and 30 units, while three markets need 35, 30 and 25 units. Before applying any initial solution method, what step is required?

Add a dummy destination with a demand of 30 units and zero transportation costs. Total supply is 120 against total demand of 90, so the surplus of 30 units must be absorbed to balance the problem. Costs are zero because the dummy allocations are not real shipments.

  1. AAdd a dummy destination with a demand of 30 units and zero transportation costsCorrect
  2. BAdd a dummy source with a supply of 30 units and zero transportation costs
  3. CAdd a dummy destination with a demand of 30 units and a very high transportation cost
  4. DAdd a dummy destination with a demand of 120 units and zero transportation costs

Explanation

Total supply is 120 and total demand is 90, so supply exceeds demand by 30. A dummy destination absorbs the 30 surplus units at zero cost because nothing is actually shipped. A dummy source would be right only if demand exceeded supply.

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