Real-World Focus
Merck & Co., Inc. is a global, research-driven pharmaceutical company that discovers, develops, manufactures, and markets a broad range of human and animal health products. The following are excerpts from the financial review section of the company’s annual report.
MERCK & CO., INC
Financial Review Section (partial)
In the United States, the Company has been working with private and governmental employers to slow the increase of health care costs.
Outside of the United States, in difficult environments encumbered by government cost containment actions, the Company has worked with payers to help them allocate scarce resources to optimize health care outcomes, limiting potentially detrimental effects of government actions on sales growth.
Several products face expiration of product patents in the near term.
The Company, along with other pharmaceutical manufacturers, received a notice from the Federal Trade Commission (FTC) that it was conducting an investigation into pricing practices.
Instructions
Answer each of the following questions.
(a) In light of the above excerpts from Merck's annual report, discuss some unique pricing issues faced by companies that operate in the pharmaceutical industry.
(b) What are some reasons why the same company often sells identical drugs for dramatically different prices in different countries? How can the same drug used for both humans and animals cost significantly different prices?
(c) Suppose that Merck has just developed a revolutionary new drug. Discuss the steps it would go through in setting a price. Include a discussion of the information it would need to gather, and the issues it would need to consider.
Want to see the full answer?
Check out a sample textbook solutionChapter 8 Solutions
Managerial Accounting: Tools for Business Decision Making
- (b) Explain one advantage and one disadvantage for CH of having a mission statement. (c) Explain two possible external sources of finance CH could use to continue production of Copper Health (CH) was the market leader in the production of anti-venom* vaccines to treat (CSR) – is to put customers first and profits second in the treatment of snake bites. poisonous snake bites. CH's mission - influenced heavily by corporate social responsibility Despite 100000 deaths worldwide each year from snake bites and 400000 serious injuries, CH recently announced that it will no longer produce anti-venom vaccines. Several large Mexican, Brazilian and Indian pharmaceutical companies have entered the market selling anti-venom 5. Copper Health (CH) vaccines at a much lower price than CH. A spokesperson for CH said: "We will remain a private limited company where corporate Social responsibility (CSR) remains an important driving force for our mission. Our medical research is only financed from retained…arrow_forwardCase Analysis: CBA Rural Bank is a rural bank serving the entire Zamboanga Peninsula and just like any business organization it has been significantly affected by the pandemic. It has 13 branches all over ZP and a total of 170 employees as of the latest manpower headcount. Below is its hypothetical manpower data and labor productivity-related costs: With the financial information given above, briefly answer the following How has the income been affected because of the pandemic? What could be the reason for its decreasing trend? What do you think was the strategy of the bank in terms of how it managed its human resources taking into consideration its manpower data and its salaries expenses? What could be the major decisions of the HRD Department in terms of its training in consideration of its decreasing amount of training expense? Build a hypothetical scenario if needed in your justification.arrow_forwardCASE STUDYSurgimed Ghana Ltd. operates in the medical supply industry and specializes in sales and installation of medical equipment and devices such as hospital furniture, medical equipment, electronic equipment, local area networking with a station monitoring and general telecom networking. The company is noted for installation of Sterilization Units, X-Ray machines and Ultrasound scanners,Installation of Medical Gas Pipe Lines and Operation Theater Requirements around the country. At the end of the 2020 financial year, the directors of the company were not sure whether they have treated the following transactions in their financial statements ending 31st December, 2020 correctly Transaction ESurgimed Ghana Ltd. received a government grant of GH¢300,000 for acquiring plant and machinery costing GH¢1,500,000 during 2017 financial year and having a useful life of 10 years. The grant received was credited to deferred income in the statement of financial position as a result of…arrow_forward
- CASE STUDYSurgimed Ghana Ltd. operates in the medical supply industry and specializes in sales and installation of medical equipment and devices such as hospital furniture, medical equipment, electronic equipment, local area networking with a station monitoring and general telecom networking. The company is noted for installation of Sterilization Units, X-Ray machines and Ultrasound scanners, Installation of Medical Gas Pipe Lines and Operation Theater Requirements around the country. At the end of the 2020 financial year, the directors of the company were not sure whether they have treated the following transactions in their financial statements ending 31st December, 2020 correctly. Transaction ASurgimed’s board of directors aimed at ensuring the highest standard of transparency and accountability to all stakeholders. As a result, they require the executive management to fully disclose every financial transaction in the financial statements as separate items. However, the company’s…arrow_forwardTommy Gunn is a division manager for K-Cern Inc., a small pharmaceutical company. Tommy's division has been working on a new drug that has the potential to revolutionize the treatment of skin cancer. Once the drug is proven to be effective in clinical trials, it will be approved for sale by the government and patented by the company. Because of the potential market for this drug, it is highly likely that the company's revenues and net income will increase significantly when it is approved. Tommy recently saw an internal company memo indicating that the drug passed its final clinical trial and that the company has received government approval to sell the drug. The company will issue a press release announcing this news in the next two days, and this announcement is expected to result in a dramatic increase in the company's stock price. Tommy knows that there is “free money” to be made if he invests in the stock before the announcement is made. However, K-Cern has a strict policy against…arrow_forwardTommy Gunn is a division manager for K-Cern Inc., a small pharmaceutical company. Tommy's division has been working on a new drug that has the potential to revolutionize the treatment of skin cancer. Once the drug is proven to be effective in clinical trials, it will be approved for sale by the government and patented by the company. Because of the potential market for this drug, it is highly likely that the company's revenues and net income will increase significantly when it is approved. Tommy recently saw an internal company memo indicating that the drug passed its final clinical trial and that the company has received government approval to sell the drug. The company will issue a press release announcing this news in the next two days, and this announcement is expected to result in a dramatic increase in the company's stock price. Tommy knows that there is “free money” to be made if he invests in the stock before the announcement is made. However, K-Cern has a strict policy against…arrow_forward
- Corinne M. Karuppan, Ph.D. Dr. Devi Shetty, a cardiac surgeon, has been on a mission to provide even the poorest of the poor with quality, affordable healthcare. AT Narayana Health, a chain of hospitals in India, surgeons perform the most complicated procedures at a tiny fraction of what it costs in the US. Its ability to do so partly lies in the use of well-known operations principles to promote process efficiency. https://www.youtube.com/watch?v=wXvTzpapa-s Discussion Questions: Describe Narayana’s achievements in health care delivery. Justify with examples. What is the relationship between process and layout at Narayana? How is waste reduced at Narayana?arrow_forwardRequired information [The following information applies to the questions displayed below.] Family Games, Inc., is a privately owned company with annual sales from a variety of wholesome electronic games that are designed for use by the entire family. The company sees itself as family-oriented and with a mission to serve the public. However, during the past two years, the company reported a net loss due to cost-cutting measures that were necessary to compete with overseas manufacturers and distributors. Yeah, I know all of the details weren’t completed until January 2, 2019, but we agreed on the transaction on December 30, 2018. By my way of reasoning, it’s a continuation transaction and the $12 million revenue belongs in the results for 2018. What’s more, the goods were on the delivery truck on December 31, 2018 waiting to be shipped after the New Year. This comment was made by Carl Land, the CFO of Family Games, to Helen Strom, the controller of Family Games, after Strom had expressed…arrow_forwardRequired information [The following information applies to the questions displayed below] Nation's Capital Fitness, Inc., operates a chain of fitness centers in the Washington, D.C., area. The firm's controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of the high-low method to develop an equation, in the form of Y=a+bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: Month January February March April May June July August September October November December Total Average "Rounded Hours of Maintenance Service 530 470 260 470 360 450 330 450 470 380 360 360 4,890 408- Maintenance Costs $ 5,068 4,220 2,800 4,330 2,970 4,140 3,100 3,510 4,010 3,200 3,250 3,040 $43,638 $ 3,637 Required: 1. Using the high-low method of cost estimation, estimate the behavior of the…arrow_forward
- . Refresh Resorts, Inc., operates health spas in Key West, Florida; Phoenix, Arizona; and Carmel, California. The Key West spa was the company’s first and opened in 1991. The Phoenix spa opened in 2004, and the Carmel spa opened in 2013. Refresh Resorts has previously evaluated divisions based on RI, but the company is considering changing to an EVA approach. All spas are assumed to face similar risks. Data for 2017 are: Q. Why might Refresh Resorts want to use EVA instead of RI for evaluating the performance of the three spas?arrow_forwardRequired information [The following information applies to the questions displayed below.] Nation's Capital Fitness, Inc., operates a chain of fitness centers in the Washington, D.C., area. The firm's controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of the high-low method to develop an equation, in the form of Y= a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year are as follows: Month January February March April May June July August September October November December Total Average Hours of Maintenance Service 520 490 300 500 310 480 Monthly maintenance cost= 320 400 470 350 340 320 4,800 400 Maintenance Costs $ 4,470 4,260 2,820 4,350 2,960 4,200 3,000 3,600 4,050 3,300 3,160 3,030 $43,200 $3,600 Required: 1. Using the high-low method of cost estimation, estimate…arrow_forward. Refresh Resorts, Inc., operates health spas in Key West, Florida; Phoenix, Arizona; and Carmel, California. The Key West spa was the company’s first and opened in 1991. The Phoenix spa opened in 2004, and the Carmel spa opened in 2013. Refresh Resorts has previously evaluated divisions based on RI, but the company is considering changing to an EVA approach. All spas are assumed to face similar risks. Data for 2017 are: Q.How does the selection of asset measurement method affect goal congruence?arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub