Biovail Corporation Discussion Questions

1. How many truckloads of product are actually required to carry $10 million of product? Show your calculations. (It may be easier to convert all length dimensions to centimeters (cm) before calculating volumes.) Given: a. 1 Wellbutrin XL tablet is estimated to 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 using different units of measurements we need to convert the trailer dimensions to centimeters before we can calculate the volumes. a. To convert meters into centimeters the ratio is: 1meter = 100 centimeters 17m= 1,700 centimeters 4.5m = 450 centimeters 2.5m = 250 centimeters To calculate volume 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 find out how many Wellbutrin XL tablets fit into a trailer 1.5x=191,250,000 X=127,500,000 d. How much revenue does Biovail get from a single pill ? 400% 35% $2.83 Biovail 0.52 Distributor 2.10 / 400% Wholesaler Retailer

2.83/1.35%=2.10

127,500,000 x 0.52= $6,630,000 One truck can definately carry $10 million worth of Wellbutrin XL tablet product.

2. How should the company recognize revenue based upon the two possible FOB contract structures mentioned in the case? Why? 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. How does the accident affect the stated revenues under the different FOB contract structures? Explain your reasoning. 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. Are you concerned about the company's treatment of analysts who cover the stock? Would you want to be an analyst covering this company? Yes, it is 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.