Fragrance, Inc. has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division incurs variable cost of $2.00 per unit, and its fixed cost is $.50 per unit. The Cologne Division can purchase similar containers from external suppliers for $2.90. The Bottle Division sells its containers to outside companies for $3.00 each. Assuming all of the containers produced by the bottle Division can be sold to outside companies, which of the following is the range at which a negotiated transfer price between the two divisions should occur?
a) A transfer price between $2.00 to $3.00
b) A transfer price between $2.00 to $2.90
c) A transfer price between $2.50 to $2.90
d) A transfer price between $2.50 to $3.00
There will be no transfer of containers from the Bottle Division to the Cologne Division.