Biovail Case

Biovail Case

Part 1:
Assumptions:
1. The mark-up is from the Distributor to the Wholesaler, and the margin is from the Wholesaler to the Retailer

Biovail Distributor purchase price Wholesaler purchase price = Distributor purchase price + 400% mark-up Retailer price = Wholesaler price + 35% margin 2. We don’t know the excess space needed in the truck for the 64 gallon drums so we assumed that the 1.00 cm3 accounts for the excess space needed. 3. We assumed the given dimensions is completely usable for storage 4. The revenue associated with the shipment goes with the price the distributor pays

Unknown: The number of trucks needed to carry $10 million of product

Given: * Wholesaler purchase price = $2.83 * Truck volume = 17m x 4.5m x 2.5m
Needed information: * Distributor purchase price * Truck volume in cm3 * Volume needed for $10 million worth of product

Distributor purchase price = $0.57

2.835=0.566

2.83-0.5660.566=400%

Truck volume in cm3 =17*4.5*2.5m3*1000000cm31m3= 191,250,000cm3

# of tablets worth $10 million =$10,000,000$0.566tablet=17,667,845 tablets

Volume needed for this many tablets =17,667,845tablets*1.5cm3/tablet=26,501,767cm3

Trucks Needed=26,501,767 cm3191,250,000cm3per truck=14% of 1 Truck

It appears that the estimates for lost revenue may be accurate knowing that the truck was filled about 25% and it only takes roughly 14% to reach $10 million.

Part 2:
FOB Shipping Point
In the case when ownership changes hands at the time of shipment (FOB shipping point), all of the conditions under SAB101 have been met in order to recognize revenue. In this case the company should recognize the full revenue value of the shipment.

FOB Destination
In the case when ownership changes hands upon receipt of the product at the distributor's facility (FOB destination), the second condition for revenue recognition under SAB101 has not