Biovail Harvard Business Review Case
1. How many truckloads of product are actually required to carry $10 million of product? Show your calculations.
A) Find the volume of the truck:
Interior dimensions of the truck
=
Interior volume of the truck
=
=
B) Find the manufacturer price (Biovail) for one tablet:
Wholesale price for one tablet
= $2.83
Distributor price for one tablet
=
Producer price for one tablet
=
[Since Wholesale margin is 35%]
[Since Distributor mark-up is 400%] = $0.3679
C) Find no. of tablets needed for $10 million price:
Total Product value
= $10,000,000
No. of tablets for this price
=
D) Find Volume of no. of tablets (calculated in step C)
Volume of one tablet, including package
=
Volume of all the tablets needed to produce $10 million =
E) Find quantity of truckloads needed for $10 million products:
No. of truckloads =
From step A and step D, we calculate both these values. Therefore,
No. of truckloads needed for $10 mil products =
= 0.21
2. How should the company recognize revenue based upon the two possible FOB contract structures mentioned in the case? Explain.
Under “FOB Shipping Point” contract structure:
According to the definition, the buyer takes responsibility for the goods as soon as they leave the seller’s premises.
Therefore, if the contract between the distributor and Biovail is “FOB Shipping Point”, then Biovail should recognize the revenue once the truck left its manufacturing facility in Manitoba, Canada.
Under “FOB Destination” contract structure:
Since “FOB Destination” contract requires the seller to be responsible for the delivery of goods to the final destination of the buyer, under this contract structure, Biovail should not recognize the revenue or income based on the timing of their shipment. They should recognize the revenue when the distributor receives and collects the goods.
3. How does the accident affect the stated revenues under the different FOB contract structures?
A) Find the volume of the truck:
Interior dimensions of the truck
=
Interior volume of the truck
=
=
B) Find the manufacturer price (Biovail) for one tablet:
Wholesale price for one tablet
= $2.83
Distributor price for one tablet
=
Producer price for one tablet
=
[Since Wholesale margin is 35%]
[Since Distributor mark-up is 400%] = $0.3679
C) Find no. of tablets needed for $10 million price:
Total Product value
= $10,000,000
No. of tablets for this price
=
D) Find Volume of no. of tablets (calculated in step C)
Volume of one tablet, including package
=
Volume of all the tablets needed to produce $10 million =
E) Find quantity of truckloads needed for $10 million products:
No. of truckloads =
From step A and step D, we calculate both these values. Therefore,
No. of truckloads needed for $10 mil products =
= 0.21
2. How should the company recognize revenue based upon the two possible FOB contract structures mentioned in the case? Explain.
Under “FOB Shipping Point” contract structure:
According to the definition, the buyer takes responsibility for the goods as soon as they leave the seller’s premises.
Therefore, if the contract between the distributor and Biovail is “FOB Shipping Point”, then Biovail should recognize the revenue once the truck left its manufacturing facility in Manitoba, Canada.
Under “FOB Destination” contract structure:
Since “FOB Destination” contract requires the seller to be responsible for the delivery of goods to the final destination of the buyer, under this contract structure, Biovail should not recognize the revenue or income based on the timing of their shipment. They should recognize the revenue when the distributor receives and collects the goods.
3. How does the accident affect the stated revenues under the different FOB contract structures?