Biovail Corporation Questions

Biovail Corporation Discussion Questions

1.

many truckl oads of  product are actually required t o carry $10 milli on of  product? Show your calculati ons. (It may be easier t o convert all length dimensi ons t o centimeters (cm) before calculating v olumes.) How

Given: a. 1 Wellbutrin XL tablet is estimated t o be 1.5 cm3 (this includes the packing space) b. 1 18- wheeler trailers dimensions are: 17m x 4.5m x 2.5m Since the tablet and the trailer are ar e using di ff erent erent units of  measurements we need t o convert the trailer dimensi ons t o centimeters before we can calculate the v olumes. a. To convert meters int o centimeters the ratio is: 1meter = 100 centimeters 17m= 1,700 centimeters 4.5m = 450 centimeters 2.5m = 250 centimeters To calculate v olume b. Volume

of  a

rectangular prism = a x b x c

 Volume= 1,700 x 450 x 250  Volume = 191,250,000 cm3 c. To f ind ind out how many Wellbutrin XL tablets f it it int o a trailer 1.5x=191,250,000 X=127,500,000 d. How much revenue d oes Biovail get f rom a single pill ? 400% 35% $2.83 Biovail 0.52

Distribut or



Wholesaler

2.10 / 400%



2.83/1.35%=2.10







Retailer

127,500,000 x 0.52= $6,630,000 One truck can de f inately inately carry $10 milli on

worth of  Wellbutrin

XL tablet pr oduct.

2.

should the company recognize revenue based upon the t wo possible FOB contract  structures mentioned in the case? Why? How

Since Biovails stock is publically owned it needs to file its financial statements with the SEC. The SEC requires that it abide by GAAP. GAAP requires that revenue be recognized when it is earned or realized. Meaning that the company has done everything it is supposed to do; which would include shipment. So Biovail should recognize revenue once its products have reached the Distributors FOB.

3.

does the accident aff ect the stated revenues under the di ff erent FOB contract  structures? Explain your reasoning. How

If Biovail recognizes revenues when the product leaves Biovails FOB shipping point then it is

recognizing revenue before it has been earned and realized. Thus abusing accounting accruals and overstating revenues and net income on financial statements, consequently giving stakeholders misleading information. On the other hand, if Biovail recognizes revenue when the product has reached the Distributors FOB destination it has recognized revenue when it has been earned and will accurately state revenues and net income on its financial statements.

4.

 A re

you concerned about the company's treatment of  analysts Would you want t o be an analyst covering this company? Yes, it is

who cover

the st ock?

of concern that Biovail would single out analysts who would downgrade stock

recommendations. I would not want to be an analyst covering their stock because it would put me in an uncomfortable position. If there was evidence that Biovail had misleading financial statements my integrity would tell me to tell the truth and give an honest recommendation. However, I would be worried because I would not want an investigation tainting my innocent name and leading to separation from my employment.