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1. a) What is the manufacturer revenue per pill? (Please see attached calculation file)

Biovail  Distributor  Wholesaler  Retailer

Retailer Wholesaler Distributor
Cost = $2.83 Margin = (Price – Cost)/Price
Margin = 0.35, Price = $2.83
Cost = Price(1 – Margin)
Cost = $1.84 Markup = (Price – Cost)/Cost
Markup = 4, Prices = $.184
Cost = Price/(1 + Markup)
Cost = (1.84)/5 = $0.37

Biovail = $0.3679 revenue per pill = $0.37 revenue per pill (rounded)

• How many pills equate to $10m in revenue?

$10m = X * $0.37 X = 27,027,027.03 = Rounded up 27,027,028 pills equate to $10m in revenue

• What is the volume of $10m worth of pills?

Per Pill = 1.5 cm3
$10m worth of Pills converted to cm3
27,027,028 Pills = 40,540,542 cm3

1 Liter = 1000 cm3
40,540,542 / 1000 = 40,540.54 Liters

1 Gallon = 3.7854 Liters
40,540.54 Liters / 3.7854 Liters = 10,709.71 Gallons

64 Gallons = 1 Drum
10,709.71 Gallons / 64 Gallons = 167.34 Drums

The volume of $10m worth of pills is 167.34 Drums

• How many truckloads are required to carry $10 million worth of pills?
One 18-wheeler Truck = (17m (100) * 4.5m (100) * 2.5m (100)) = 191,250,000 cm3

Truckload(s) to carry $10m worth of pills = 40,540,542 cm3 / 191,250,000 cm3 = 0.211977 = 21.1977%
One truckload is more than enough to carry $10 million worth of pills, approximately 21.1977% of a truckload or roughly one fifth of the truck equates to $10 Million worth of pills.
2. How should the company recognize revenue based on each of the two possible FOB contract structures mentioned in the case? Explain.

The two possible FOB contract structures are a) FOB Shipping Point and b) FOB Destination:

a) Based on FOB Shipping Point, Biovail would have recognized revenue once the shipment of Wellbutrin XL left Biovail’s manufacturing facility in Manitoba, Canada on September 30, 2003.

b)

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