Two Quotations for 200 Usable Ghee Tins
A cooperative store has to supply 200 ghee tins for a function, and only tins that arrive undamaged can be used. Supplier X quotes ₹1,200 per tin with two successive trade discounts of 20% and 10%, free delivery, and a breakage rate of 1% in transit. Supplier Y quotes ₹1,150 per tin with a single 30% discount, charges ₹8 per tin as freight, and has a breakage rate of 4% because of the way it loads its trucks. In both cases GST at 5% is charged on the price after discount, and freight is billed separately and is not taxed. The store's sanctioned budget for the purchase is ₹1,80,000, which cannot be increased. Supplier Y offers a further 2% discount on the discounted price if the bill is paid in advance.
1. Compute the landed cost per usable tin for both suppliers and recommend one, showing your working.
Read the worked answer
Work to cost per tin that actually reaches the counter.
Supplier X
- ₹1,200 × 0.80 = ₹960; ₹960 × 0.90 = ₹864.
- GST: ₹864 × 1.05 = ₹907.20 landed per tin.
- Only 99% survive, so cost per usable tin = 907.20 ÷ 0.99 = ₹916.36.
Supplier Y
- ₹1,150 × 0.70 = ₹805.
- GST: ₹805 × 1.05 = ₹845.25; add ₹8 freight = ₹853.25 landed per tin.
- Only 96% survive, so cost per usable tin = 853.25 ÷ 0.96 = ₹888.80.
Y wins, but not because of its headline price: Y's landed cost is already ₹53.95 lower per tin, and the 4% breakage widens the gap to ₹27.56 per usable tin. Note that two successive discounts of 20% and 10% are not 30% - the second discount applies to ₹960, giving ₹864, not ₹840. That is precisely why X's apparently similar discount structure is worse.
2. Given the ₹1,80,000 budget, how many usable tins can each supplier actually deliver against the requirement of 200? What should the store do?
Read the worked answer
Convert the budget into usable tins, not just tins.
Supplier X: ₹1,80,000 ÷ ₹907.20 = 198.4, so 198 tins can be billed. Usable = 198 × 0.99 = 196.02, i.e. 196 usable tins. Buying the 203 tins needed for 200 usable ones would cost 203 × 907.20 = ₹1,84,161.60, which exceeds the budget.
Supplier Y: ₹1,80,000 ÷ ₹853.25 = 210.9, so 210 tins. Usable = 210 × 0.96 = 201.6, i.e. 201 usable tins. Cost = 210 × 853.25 = ₹1,79,182.50, inside the budget with ₹817.50 to spare.
Decision: order 210 tins from Y. It is the only option that meets the 200-tin requirement without breaching the sanction, and it leaves a small buffer for any tin damaged after delivery. Ordering 203 tins from X would require a revised sanction the store does not have. If Y's delivery is delayed, X can supply only 196 - the shortfall of 4 tins must be arranged separately rather than assumed.
3. Evaluate Supplier Y's offer of a 2% discount for advance payment. Does it change the recommendation, and what should the store check before accepting?
Read the worked answer
Recompute Y's landed cost with the extra discount.
- ₹805 × 0.98 = ₹788.90.
- GST: ₹788.90 × 1.05 = ₹828.345; add ₹8 freight = ₹836.345 per tin.
- 210 tins cost 210 × 836.345 = ₹1,75,632.45, against ₹1,79,182.50 earlier - a saving of ₹3,550.05.
- Cost per usable tin falls from ₹888.80 to 836.345 ÷ 0.96 = ₹871.19, which is still the cheapest option.
The recommendation does not change; it strengthens. It is not, however, an automatic yes. The store should check whether paying in advance is permitted under its purchase rules, whether the advance is to be paid against a proforma invoice with delivery within a fixed number of days, and whether the 2% is calculated before or after GST is added - a 2% computed on the GST-inclusive amount is worth more than 2% on the basic price. The ₹3,550 gain is small enough that it should not be allowed to justify taking a delivery risk.