Festival stock: import or buy local?
Sita runs a stationery shop in Birgunj. She needs 300 exercise books for the school season. A wholesaler in India quotes INR 40 per book. The bank converts at INR 1 = NPR 1.60 and charges a 2% commission on the converted amount. Freight and customs together come to NPR 3,200. Sita marks each book at NPR 120. During the season she gives a 15% discount on the marked price, then adds 13% VAT on the discounted price. She expects 8% of the 300 books to remain unsold and donates them to a school. A local supplier offers the same book at NPR 95 per copy including 13% VAT. Sita is VAT-registered, so input VAT can be claimed, but she wants a 25% profit on her total landed cost before deciding. She asks whether the Indian order is cheaper and whether her 15% discount still meets the profit target.
1. Calculate Sita's total landed cost and the landed cost per usable book.
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Landed cost
- Cost in India: 300 × INR 40 = INR 12,000.
- Converted to NPR: 12,000 × 1.60 = NPR 19,200.
- Bank commission: 2% of 19,200 = NPR 384.
- Add freight and customs: 19,200 + 384 + 3,200 = NPR 22,784.
- Usable books after donation: 92% of 300 = 276.
Landed cost per usable book = 22,784 ÷ 276 ≈ NPR 82.55.
The donation is not free: its cost is carried by the 276 books that are sold.
2. At the 15% discount, what profit percentage does Sita make on landed cost? Does she reach her 25% target?
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Selling price before VAT = 120 × 0.85 = NPR 102. VAT is collected for the government, so treat NPR 102 as net revenue per sold book.
Revenue = 102 × 276 = NPR 28,152.
Profit = 28,152 − 22,784 = NPR 5,368.
Profit percentage = (5,368 ÷ 22,784) × 100 ≈ 23.6%.
She does not reach 25%. The required revenue is 22,784 × 1.25 = NPR 28,480, which means 28,480 ÷ 276 ≈ NPR 103.19 per sold book before VAT.
3. Compare the local supplier's effective cost with the import. What is the highest whole-number discount percentage Sita can give and still make 25% profit?
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For 25% profit, the net price per sold book must be about NPR 103.19. The highest discount is (120 − 103.19) ÷ 120 × 100 ≈ 14.0%. So the highest whole-number discount is 14%; 15% misses the target.
Local supplier: NPR 95 includes 13% VAT. Since Sita can claim input VAT, net cost = 95 ÷ 1.13 ≈ NPR 84.07 per book. For 300 books this is about NPR 25,221, or 25,221 ÷ 276 ≈ NPR 91.38 per usable book.
Import cost per usable book is about NPR 82.55, so the import is cheaper by about NPR 8.83 per usable book, or about NPR 2,437 in total. Recommendation: import, but keep the discount at 14% or lower.