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What should be the correct transfer price

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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

Reference no: EM131818363

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