7.

Overton Company uses cost-based transfer pricing. Its Food Processing Division has a standard variable cost of $10.00 per case and allocated fixed overhead of $3.00. The Processing Division, which has excess capacity, sells its output to external customers for $13.50 per case. If Overton uses full (or absorption) cost as its base, the transfer price charged to its Retail Division should be:

Multiple Choice

• $16.50.

• $13.50.

• $13.00.

• $10.00 plus a markup.

• negotiated between the managers of the Processing and Retail Divisions.