Overton Company uses cost-based transfer pricing. Its Food Processing Division has a standard variable cost of $8.80 per case and allocated fixed overhead of $2.40. The Processing Division, which has excess capacity, sells its output to external customers for $12.30 per case. If Overton uses variable costs as its base, the transfer price charged to its Retail Division should be:

Multiple Choice

$14.70.

$12.30 plus a markup.

$11.20 plus a markup.

$8.80 plus a markup.

negotiated between the managers of the Processing and Retail Divisions.