Reference no: EM133346891

Question: Determine how to appropriately allocate the costs in the tables below to each of the commercial products using an allocation methodology of your choice.

Use the supporting data below Provide a written summary of how you allocated the overhead costs to each product in an outline of no more than one page.

1. Start off with Net Product Sales of REGN Products. Your objective pertains to 2019 expenses, so you should be reviewing 2019 total revenue per product (ignore US and ROW sales). Itemize out total product revenue for Eylea, Dupixent, Praulent, and Kevzara and then divide each product's revenue by total 2019 revenue. This will give you the % portion that each product contributes to total sales. For example - Eylea contributed around 70%. Since you are only concerned with 4 out of the 8 products, you should group the combined revenue of all the remaining products into an Other and calculate the proportionate percentage of that - approximately 3%.
2. Take a look at the numbers you were given in the table - Total 2019 Annual Operating Expense for each of the 5 departments. Consider what the third column "time spent supporting Commercial products" represents - 4 out of the 5 departments did not spend 100% of their time supporting Commercial products, so it wouldn't be appropriate to allocate all Operating Expense for 2019 to the four products. Instead you should adjust 2019 Operating Expense for Time Spent (so: Column 2 x Column 3) and calculate what you would call Adjusted 2019 Annual Operating Expense. This Adjusted Operating Expense is what's appropriate to allocate across all four products per your objective.
3. Review the current data you have: the % share of each product's contribution to total sales revenue in 2019 and the Adjusted Operating Expense for 2019 per department. With the data we have, the best assumption we can make is that if a product is contributing more revenue to the company. If one product pulls in more revenue from sales than others, it must mean more of those products are being sold. If a certain product has more being sold, it also means the company manufactures more of those products than the ones that sold less. Manufacturing more of some products than others means they must have accrued more of the 2019 expenses.
4. Considering all of that above - you should multiply the Adjusted 2019 Annual Operating Expense by the respective percentages of Eylea, Dupixent, Praluent, Kevzara, and Other. Show in a table what that allocation of expense per product looks like.