Raincoat Procurement: Deadline Versus Sanctioned Budget
The police lines must buy 150 raincoats before the monsoon, and ₹62,000 has been sanctioned. Two quotations are on the table. Vendor A quotes a list price of ₹480 per raincoat with successive discounts of 20% and 5%, plus GST at 12% on the net amount, but needs 10 days to deliver. Vendor B offers a single discount of 25% on the same list price with GST at 18%, and can deliver in 4 days. The meteorological office expects the rains to begin in seven days, and the stores section estimates that raincoats bought after the first spell cost the department about ₹9,000 in replacement uniforms and lost duty hours. No further funds can be released this quarter without written justification.
A junior clerk has already noted on the file that 'Vendor A is cheaper, so Vendor A may be selected'. The shortage of 6 units is also under discussion, because last year 4% of the supplied stock arrived with torn seams and could not be replaced in time.
1. Calculate the landed cost per raincoat and the total for 150 units for both vendors. Show every step.
Read the worked answer
Vendor A - successive discounts, each on the reduced price
- List price = ₹480
- After 20%: 480 × 0.80 = ₹384
- After a further 5%: 384 × 0.95 = ₹364.80 (successive discounts multiply; they are not added to 25%)
- GST at 12% on the net: 364.80 × 1.12 = ₹408.576 ≈ ₹408.58 per raincoat
- 150 units: 408.576 × 150 = ₹61,286.40
Vendor B - single discount
- After 25%: 480 × 0.75 = ₹360
- GST at 18%: 360 × 1.18 = ₹424.80 per raincoat
- 150 units: 424.80 × 150 = ₹63,720.00
Comparison
- A is cheaper by 424.80 − 408.576 = ₹16.224 per unit, i.e. ₹2,433.60 on the order.
- The lower GST rate is why A survives an apparently larger discount from B - a common trap in quotations.
- Both fit inside a ₹62,000 sanction only for A (₹61,286.40 leaves ₹713.60 spare); B exceeds it by ₹1,720.
So the clerk's arithmetic is right but incomplete: cheap is not the same as compliant, because the delivery deadline has not yet been applied.
2. Which vendor should be recommended, given the seven-day deadline and the fixed sanction? Justify the choice and state exactly what must be put on file.
Read the worked answer
Apply the hard constraint first. Rain is expected in 7 days; the raincoats must be in hand before the first spell.
- Vendor A: 10 days → 3 days late. Under last year's pattern the department absorbs roughly ₹9,000 in replacement uniforms and lost duty hours when the first spell is missed.
- Vendor B: 4 days → well inside the window.
So A is disqualified by the deadline despite being cheaper. A's saving is only ₹2,433.60, which is far less than the ₹9,000 exposure - buying late is the expensive option.
But B breaches the sanction: ₹63,720 against ₹62,000 = shortfall of ₹1,720, i.e. ₹11.47 per raincoat. Three lawful routes:
- Negotiate: ask B to come to ₹62,000 ÷ 150 = ₹413.33 per unit, a reduction of ₹11.47 (about 2.7% on the landed rate, or roughly 3.2 percentage points more discount).
- Seek a written sanction of ₹1,720 from the competent authority, attaching the ₹9,000 risk estimate - the cheapest compliant route if negotiation fails.
- Reduce quantity only as a last resort (141 units at ₹424.80 = ₹59,884.80), since 150 is the stated requirement.
Put on file: the landed-cost computation, the delivery dates, the ₹1,720 gap, the ₹9,000 risk figure, and the reason the cheaper quotation was not accepted (delay, not price). A note saying only 'A is cheaper' would be indefensible in audit.
3. If, as last year, some supplied stock arrives defective and cannot be replaced in time, how does that change the effective cost? Work the figures for Vendor B.
Read the worked answer
Effective cost must be calculated per usable raincoat, not per purchased raincoat.
Last year 4% of stock arrived with torn seams. Apply that to 150 units:
- Defective: 4% of 150 = 6 units
- Usable: 144 units
- Money spent (Vendor B): ₹63,720
- Effective cost per usable raincoat: 63,720 ÷ 144 = ₹442.50
That is ₹17.70 per usable unit more than the quoted landed rate, and ₹33.92 more than Vendor A's landed rate.
To end up with 150 usable raincoats at the same 4% defect rate:
- Required purchase = 150 ÷ 0.96 = 156.25 → 157 units
- Cost = 157 × 424.80 = ₹66,693.60 - ₹4,693.60 over the sanction.
Judgement points:
- The defect rate silently raises the real price; quotations should be compared after applying it.
- The order must therefore include a replacement clause within the delivery window, and a pre-acceptance inspection (count, seam check, sample pull) before payment is released.
- If replacement is impossible, 144 usable raincoats is a shortfall of 6 against the requirement - this should be stated on file as a shortage, not hidden inside the unit price.