Dell contracts with its suppliers to pre-kit certain component parts before delivering them to Dell. Assume that this saves $1.5 million of the kitting activ¬ ity cost and that it reduces the total number of parts by 400 million (because Dell considers each pre-kit as one part). If a server now uses 80 parts, what is the new kitting cost assigned to one server?

a. $0.35

b. $0.70

c. $0.9375

d. $1.00 Two of Dell’s primary pro¬ duction activities are kitting (assembling raw materials needed for a particular computer or server in one kit) and boxing the completed products for shipment to customers. Assume that Dell spends $5 million a month on the kitting activity and $10 million a month on boxing. It allocates kitting activity costs based on the number of parts used in the product and boxing activity costs based on the cubic feet of space the product requires. Suppose Dell estimates it will use 800 million parts a month and ship products with a total volume of 20 million cubic feet.
Assume that each desktop computer requires 100 parts and has a volume of 5 cubic feet. Assume that each server requires 150 parts and has a volume of 7 cubic feet.