Biovail

2. Based on the two different FOB contract structures mentioned in the case, if Biovail used the FOB shipping point they should recognize revenue when they have shipped the product from their location. Since in FOB shipping point title is transferred when they ship the product off, they are no longer responsible for damages or incidents that could occur. Therefore when the accident happened they are not responsible for the products since they have performed their part of the job and have earned the revenue already.

For FOB destination Biovail would recognize the revenue when the product is delivered to the distributor. In FOB destination the title does not change until it is received by the customer making Biovail liable for anything that could happen while the product is in route. Therefore when the accident occurred, Biovail was on the hook for the merchandise and would have to replace any damaged good before they could see a profit which could wind of costing a lot more.

3. The revenue would be effected differently under the two different FOB contract structures. Biovail should have recognized the revenue under the FOB destination structure, but instead recognized it under FOB shipping points stricter so that they could show the revenue for that period instead of the next.

Under FOB shipping point, the revenues would be unaffected because title and risk of the product was transferred to the distributor the moment it left Biovail. The revenue was already earned and could not be effected by the accident

Under FOB destination however, the accident would have cause a decrease in the company’s revenue since they still had the title and risk. But Biovail released a guidance that their revenues would be lower since the truck would not have made it before the end of September 30, 2003. Although the accident would after the company’s revenue it would not have affected the company’s third quarter income report they released.