Consider the Transportation Problem and Its Initial Solution in the Table

question 41

Multiple Choice

Consider the transportation problem and its initial solution in the table below. What is the improvement index for the empty cell Source 1 - Destination 3?
$\begin{array}{|l|r|r|r|r|r|}\hline \text { COSTS } & \text { Dest. 1 } & \text { Dest. 2 } & \text { Dest. 3 } & \text { Dest. 4 } & \text { Supply } \\\hline\text { Source 1 } & 12 & 18 & 9 & 11 & 45 \\\hline\text { Source 2 } & 19 & 7 & 30 & 15 & 145 \\\hline\text { Source 3 } & 8 & 10 & 14 & 16 & 50 \\\hline \text { Demand } & 80 & 30 & 70 & 60 & 240/240 \\\hline & & & & & \\\hline \text { Shipments } & \text { Dest. 1 } & \text { Dest. 2 } & \text { Dest. 3 } & \text { Dest. 4 } & \text { Row Total } \\\text { Source 1 } & 45 & 0 & 0 & 0 & 45 \\\text { Source 2 } & 35 & 30 & 70 & 10 & 145 \\\text { Source 3 } & 0 & 0 & 0 & 50 & 50 \\\text { Col. Total } & 80 & 30 & 70 & 60 & 240/240 \\\hline\end{array}$

• A) 0
• B) -14
• C) -23
• D) -70
• E) 115

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Definitions:

Departmental Overhead Rate Method

An accounting method used to allocate overhead costs to specific departments based on relevant activity bases.

Overhead Resources

The ongoing operational costs required to run a business that are not directly tied to a specific product or service, such as rent, utilities, and general office supplies.

Activity Pool

A concept in cost accounting used to gather all costs associated with a certain activity, facilitating more accurate cost allocation.

Activity-based Costing Method

A costing method that assigns costs to products or services based on the activities they require, aiming for more accurate allocation of overheads.