Register Procurement with Conflicting Cost, Delivery and Quality
The office must buy 1,200 bound registers for the new financial year. The budget is ₹1,10,000. Three quotations are on file. Vendor P: ₹84 per register, GST 12% extra, freight ₹1,800, delivery in 7 days; sample binding is satisfactory. Vendor Q: ₹92 per register inclusive of GST, free delivery, delivery in 12 days; sample satisfactory. Vendor R: ₹78 per register, GST 18% extra, freight ₹2,400, delivery in 9 days; a 5% quantity discount applies to orders above 1,000 registers, calculated on the basic price before GST. R's sample has weak stitching in 3 of 20 registers. The office needs the registers within 10 days. The purchase committee must record reasons for its choice and cannot split the order unless the lowest bidder fails to supply. Assume freight is proportional if a part order is placed.
1. Compute the landed cost of each quotation, rank them, and decide.
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P: 1,200 × ₹84 = ₹1,00,800; GST at 12% = ₹12,096; freight ₹1,800; total ₹1,14,696. Q: 1,200 × ₹92 = ₹1,10,400, inclusive of GST and freight. R: 1,200 × ₹78 = ₹93,600; 5% discount = ₹4,680; net basic = ₹88,920; GST at 18% = ₹16,005.60; freight ₹2,400; total ₹1,07,325.60. Cost ranking is R, Q, P. But the decision is not cost alone. P exceeds the budget. Q is within budget but misses the 10-day requirement. R is within budget, meets the delivery date, and is lowest, but its sample has a 15% stitching defect rate. The defensible choice is R subject to pre-despatch inspection, replacement of defective registers, and withholding of payment until inspection. If R refuses those conditions, the committee must record why it is moving to Q or seeking budget revision.
2. R later says it can supply only 900 by day 9; the balance of 300 must come from P at P's rates, with freight apportioned. Compute the blended cost and advise.
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R for 900: basic 900 × ₹78 = ₹70,200. The 5% discount does not apply because the order is not above 1,000. GST at 18% = ₹12,636; freight apportioned = ₹2,400 × 900/1,200 = ₹1,800; total ₹84,636. P for 300: basic 300 × ₹84 = ₹25,200; GST at 12% = ₹3,024; freight apportioned = ₹1,800 × 300/1,200 = ₹450; total ₹28,674. Blended cost = ₹1,13,310, which exceeds the budget by ₹3,310. The committee should first ask R to extend the 5% discount to 900 or absorb freight; that would reduce the cost. It should also ask Q whether it can supply 300 within 10 days at ₹92; that would give ₹84,636 + ₹27,600 = ₹1,12,236, still over budget. If neither works, the committee must either obtain a revised budget or reduce quantity with recorded reasons. Splitting without a recorded failure by the lowest bidder would violate the stated procurement condition.
3. What should the purchase committee record to protect the decision?
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The committee should record a comparative statement showing basic price, discount, GST, freight and landed cost for each vendor; the delivery requirement and each vendor's offered date; the quality inspection note for R, including the 3 of 20 defective sample; the conditions imposed on R; and the reason for not accepting the lowest-cost quote if quality conditions fail. If a part order is placed, it should record R's failure to supply the full quantity and the arithmetic of the blended cost. Approval should be on file before dispatch. This record protects the committee against an audit objection that it ignored either cost or quality. It also explains why the office did not simply choose the cheapest quotation, which is the most common audit question in such purchases.