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OPMFORMULA is a medium-sized baby formula production plant in Boston, Massachusetts. The company has been in business for over 20 years, mainly producing baby formula for infant nutrition industry and selling the formula exclusively through its distribution network across the United States. Over the years, OPMFORMULA gradually expanded its production capacity and consumer base. However, over the past 24 months, the company has been faced with an unprecedented and unanticipated increase in demand, which has cleared out its storage facilities and exceeded its production capabilities. At this time, the demand continues to be extremely high. The company has an existing storage facility, specifically designed for long-term storage of baby formula (controlled climate, humidity, etc.), which can be converted to a new production line. The new production line would increase the existing manufacturing capabilities by 50%. However, this would require a substantial investment in remodeling of the facility and purchasing of expensive equipment from a producer in Amersfoort, Netherlands. To proceed with this option, it would be also necessary for OPMFORMULA to obtain a loan from a bank and hire additional staff. It is estimated that it will take at least 18 months for the new production facility to start producing. OPMFORMULA leadership is faced with a dilemma. If they do not expand the current capacity, they risk losing the market share to competitors that are more flexible in adapting to higher demand. At the same time, the expansion is very costly while the long-term demand is uncertain. You are hired by OPMFORMULA as a consultant to help make the right business decision and to come up with an action plan.

OPMFORMULA is a medium-sized baby formula production plant in Boston, Massachusetts. The company has been in business for over 20 years, mainly producing baby formula for infant nutrition industry and selling the formula exclusively through its distribution network across the United States. Over the years, OPMFORMULA gradually expanded its production capacity and consumer base. However, over the past 24 months, the company has been faced with an unprecedented and unanticipated increase in demand, which has cleared out its storage facilities and exceeded its production capabilities. At this time, the demand continues to be extremely high. The company has an existing storage facility, specifically designed for long-term storage of baby formula (controlled climate, humidity, etc.), which can be converted to a new production line. The new production line would increase the existing manufacturing capabilities by 50%. However, this would require a substantial investment in remodeling of the facility and purchasing of expensive equipment from a producer in Amersfoort, Netherlands. To proceed with this option, it would be also necessary for OPMFORMULA to obtain a loan from a bank and hire additional staff. It is estimated that it will take at least 18 months for the new production facility to start producing. OPMFORMULA leadership is faced with a dilemma. If they do not expand the current capacity, they risk losing the market share to competitors that are more flexible in adapting to higher demand. At the same time, the expansion is very costly while the long-term demand is uncertain. You are hired by OPMFORMULA as a consultant to help make the right business decision and to come up with an action plan.

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter13: Emerging Topics In Managerial Accounting
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1 of 2 OPM 3000 HW #3 OPMFORMULA is a medium-sized baby formula production plant in Boston, Massachusetts. The company has been in business for over 20 years, mainly producing baby formula for infant nutrition industry and selling the formula exclusively through its distribution network across the United States. Over the years, OPMFORMULA gradually expanded its production capacity and consumer base. However, over the past 24 months, the company has been faced with an unprecedented and unanticipated increase in demand, which has cleared out its storage facilities and exceeded its production capabilities. At this time, the demand continues to be extremely high. The company has an existing storage facility, specifically designed for long-term storage of baby formula (controlled climate, humidity, etc.), which can be converted to a new production line. The new production line would increase the existing manufacturing capabilities by 50%. However, this would require a substantial investment in remodeling of the facility and purchasing of expensive equipment from a producer in Amersfoort, Netherlands. To proceed with this option, it would be also necessary for OPMFORMULA to obtain a loan from a bank and hire additional staff. It is estimated that it will take at least 18 months for the new production facility to start producing. OPMFORMULA leadership is faced with a dilemma. If they do not expand the current capacity, they risk losing the market share to competitors that are more flexible in adapting to higher demand. At the same time, the expansion is very costly while the long-term demand is uncertain. You are hired by OPMFORMULA as a consultant to help make the right business decision and to come up with an action plan.
Transcribed Image Text:1 of 2 OPM 3000 HW #3 OPMFORMULA is a medium-sized baby formula production plant in Boston, Massachusetts. The company has been in business for over 20 years, mainly producing baby formula for infant nutrition industry and selling the formula exclusively through its distribution network across the United States. Over the years, OPMFORMULA gradually expanded its production capacity and consumer base. However, over the past 24 months, the company has been faced with an unprecedented and unanticipated increase in demand, which has cleared out its storage facilities and exceeded its production capabilities. At this time, the demand continues to be extremely high. The company has an existing storage facility, specifically designed for long-term storage of baby formula (controlled climate, humidity, etc.), which can be converted to a new production line. The new production line would increase the existing manufacturing capabilities by 50%. However, this would require a substantial investment in remodeling of the facility and purchasing of expensive equipment from a producer in Amersfoort, Netherlands. To proceed with this option, it would be also necessary for OPMFORMULA to obtain a loan from a bank and hire additional staff. It is estimated that it will take at least 18 months for the new production facility to start producing. OPMFORMULA leadership is faced with a dilemma. If they do not expand the current capacity, they risk losing the market share to competitors that are more flexible in adapting to higher demand. At the same time, the expansion is very costly while the long-term demand is uncertain. You are hired by OPMFORMULA as a consultant to help make the right business decision and to come up with an action plan.
Part B Question: As an alternative to internal expansion, OPMFORMULA was just presented with an option to acquire a small-sized baby formula company in San Diego, California. While this acquisition will allow OPMFORMULA to increase its existing manufacturing capabilities by 50% in just six months, it will be drastically more expensive than converting an existing storage facility to a new production line. Should OPMFORMULA consider this acquisition project? Please base your recommendation on the analysis of the triple constraint and provide a detailed explanation of the rationale for your recommendation.
Transcribed Image Text:Part B Question: As an alternative to internal expansion, OPMFORMULA was just presented with an option to acquire a small-sized baby formula company in San Diego, California. While this acquisition will allow OPMFORMULA to increase its existing manufacturing capabilities by 50% in just six months, it will be drastically more expensive than converting an existing storage facility to a new production line. Should OPMFORMULA consider this acquisition project? Please base your recommendation on the analysis of the triple constraint and provide a detailed explanation of the rationale for your recommendation.
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