Overton Company Uses Cost-Based Transfer Pricing

Overton 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 Processing Division, which has excess capacity, sells its output to external customers for $12.00 per case.
- If Overton uses variable costs as its base, the transfer price charged to its Retail Division should be:

A) $14.25.
B) $12.00 plus a markup.
C) $10.75 plus a markup.
D) $8.50 plus a markup.
E) negotiated between the managers of the Processing and Retail Divisions.