Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 31

Cost Allocation and Taxation at Nonprofit Organizations Nonprofit organizations are exempt from federal income tax except for income from any activities that are unrelated to the nonprofit's charitable purpose. An example is the use of a laboratory for both tax-exempt basic medical research and for testing a taxable product for commercial pharmaceutical firms. A concern in these cases is that tax-exempt nonprofit organizations will be able to compete unfairly with for-profit firms because of their tax-exempt status. The key argument is that common costs for the nonprofit's exempt and business activities will be used to "subsidize" the for-profit business (in this case, the taxable product testing).
Required How would cost allocation play a role in affecting the operating results of a nonprofit organization which has both business and charitable activities