Quarterly Store Procurement Within a Fixed Budget
A station store has a sanctioned budget of ₹1,50,000 for one quarter's procurement, and the prices quoted by both approved suppliers are inclusive of GST. The indenting section has asked for 150 units of item A at a list price of ₹480 each and 80 units of item B at ₹1,250 each; the demand for item A is based on a maintenance schedule and cannot be reduced. Supplier A offers a flat 12 per cent trade discount on the list price and free delivery. Supplier B offers a 10 per cent trade discount but charges ₹2,000 for delivery. The storekeeper must place the order this week. Separately, Supplier A has offered a further 3 per cent discount on the net invoice if payment is made within seven days instead of the station's normal 30-day cycle; the accounts officer estimates that releasing payment 23 days early would cost the station ₹5,000 in interest on funds diverted from another head.
1. Work out the net payable to Supplier A and to Supplier B, and state whether the sanctioned budget is sufficient.
Read the worked answer
Gross value before discount: 150 × ₹480 = ₹72,000 for item A; 80 × ₹1,250 = ₹1,00,000 for item B; total ₹1,72,000.
Supplier A: ₹1,72,000 × 0.88 = ₹1,51,360; delivery free, so net payable ₹1,51,360. Supplier B: ₹1,72,000 × 0.90 = ₹1,54,800; add ₹2,000 delivery = ₹1,56,800.
The budget is ₹1,50,000, so neither quote fits. Supplier A is cheaper by ₹5,440 and overshoots by only ₹1,360, so any negotiation or trimming must be done with A. The comparison has to be made on the delivered net figure, not on the discount rate - B's 10 per cent looks close to A's 12 per cent, but the delivery charge widens the gap by more than the discount difference on item B alone.
2. Item A cannot be cut. Under Supplier A, what is the smallest number of units of item B that must be dropped to fit the budget? Show the rounding logic.
Read the worked answer
Net cost of one unit of B under Supplier A = ₹1,250 × 0.88 = ₹1,100.
Shortfall = ₹1,51,360 − ₹1,50,000 = ₹1,360.
1,360 ÷ 1,100 = 1.24 units. One unit is not enough: dropping one unit saves ₹1,100 and leaves the order at ₹1,50,260, still ₹260 over budget. The count must therefore be rounded up to two units.
Check at 78 units of B: gross = ₹72,000 + (78 × ₹1,250 = ₹97,500) = ₹1,69,500; less 12 per cent = ₹1,49,160, which is within budget with ₹840 to spare. That spare is less than one further unit of B (₹1,100), so 78 is the maximum affordable quantity, not merely the minimum reduction.
3. Should the 3 per cent early-payment discount be accepted? Support the decision with figures, and state the threshold at which the offer would become worthwhile.
Read the worked answer
Discount on the net invoice: 3 per cent of ₹1,49,160 = ₹4,474.80. Cost of paying early: ₹5,000 in interest on funds diverted for 23 days. Net effect = ₹4,474.80 − ₹5,000 = a loss of ₹525.20.
Decision: decline the offer on these figures. It becomes worthwhile only when the discount exceeds the cost of funds: ₹5,000 ÷ ₹1,49,160 = 3.35 per cent, so roughly 3.4 per cent or better on the same invoice. Two caveats belong in the note: the 3 per cent is assumed to apply to the discounted invoice value and not to the list value (confirm with the supplier in writing), and the ₹5,000 is an estimate, so the accounts officer should confirm it before the offer is refused outright.