Activity based costing managerial accounting case help!

Chapter 5: Activity-Based Costing 5.1 TeaTime.com After 10 years Of utorking as an internal auditor at a large insurance company, Patrick Vickers decided to realize his dream Of running his own business. He had a young family and wanted the flexibility in hours that a small business would provide. His job at the insurance company gave him the chance to travel to Asia, where he developed a love Of fine tea. After years Of dreaming, planning, and saving, he started TeaTime.com in January 2012. While he expected business to be slow at first, he was disappointed in the financial results in his first year of operations. (See Exhibit 1.) TeaTime.com is an on-line company that provides a premium tea delivery service to its members. For $20 per month, members receive a package containing four different blends Of loose-leaf tea, which is care, fully selected by Patrick through his contacts in Asia. Each month the blends of tea changes, allowing Patrick to fulfill his goals Of bringing a variety Of premium Asian tea to the Canadian market as well as supporting many of the small tea producers he got to know in his travels to Asia. Patrick did his research before deciding to open TeaTime.com. Tea is one Of the most popular drinks in the world and consumption Of tea in Canada is increasing as consumers are becoming more aware Of its health benefits. Patrick felt that busy Canadians would appreciate the convenience Of having premium tea delivered to their door and that the $20 monthly fee would be enough to cover his costs plus give him some income to support his family. The business model Patrick set up is simple. Members subscribe to the service on the TeaTime.com web- site. After completing a form with name. address, and credit card information, members start receiving their monthly boxes of tea. Recognizing that members may need to suspend deliveries for vacations or other reasons, the website has a spot where members can pause and restart their accounts at any time. Members can also access a discussion board where they can leave comments about their favourite blends of tea. The tea is pre-ordered from Asia and packaged in TeaTime.com's office space, which Patrick rents from his uncle at a reasonable rate Demand was strong enough in the first year that Patrick needed to hire four part-time staff to help him run the company. One staff member is responsible for the website and the member accounts. The other three package the tea and send it to members. Being close to a large university, Patrick easily filled the four part- time positions with students hoping to earn some extra money. Because of Patricks experience in Asia, he has kept control of selecting and ordering the tea from the Asian suppliers. With his background in internal audit, Patrick keeps tight control of the company operations. Despite all of Patrick's hard work, he is worried about whether his business will be able to generate enough profit to support his family. He knows that competition is tough, with premium tea shops in many convenient locations. If he could increase the number of members, he believes TeaTime.com could become profitable. He remembers learning about activity-based costing in university and wants to see if it could be used to help his company. He figured he would talk to his staff to see if they could provide any insight on the various activities of the business. (The information they provided is in Exhibit 2.) If TeaTime.com did not start to generate profits, he might have to go back to work at the insurance company. He was very well respected when he resigned, and his boss did say to contact him in the future if he ever needed work. Using the