Cost Accounting Question - Underwood Company uses cost-based transfer pricing. Its Food Processing Division has a standard variable cost of $8.50 per case and allocated fixed overhead of $2.25. The Food Processing Division, which has excess capacity, sells its output to external customers for $12.00 per case.
If Retail Division could buy a case of the product from the external market for $9, what should be the correct transfer price so that the two divisions' decisions are congruent with the interests of the firm?:
A. $14.25.
B. $8.5.
C. $10.75.
D. $8.50 plus a markup.
E. $9
F. negotiated between the managers of the Processing and Retail Divisions