The Santa Teresa Health Center provides help and treatment for alcoholism and drug addiction. The case offers a real-world setting to discuss the challenges facing hybrid organizations as they seek to balance the passion, values, and mission of a social, not-for-profit organization with the efficiency, innovation, and resources of a traditional for-profit organization. Furthermore, the case provides food for thought about ways to improve the cost allocation to patients and this way provides relevant information for decision-making and improvements to the management of the clinic.

In a not-for-profit organization, the goal is to maximize social impact, not financial results. Still, the firm needs to employ management knowledge to pursue the sustainability of its work.

(1) address a refined cost allocation of indirect costs (using ABC and the cost allocation bases you find appropriate given the information provided);

(2) assess the profitability of the 3 services (i.e., alcoholism, drug, aftercare) in light of the new allocation of indirect costs;

(3) discuss options to find short-term gains for the Santa Teresa Health Center perhaps suggesting a different mix of services in light of the limited space available, and

(4) suggest longer-term improvement possibilities or broader strategic alternatives.

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1 A cost allocation base is a measure that is used to determine how indirect costs are allocated to cost objects Cost allocation bases can be classified into two categories physical measures and non p... View the full answer