Flowers and Flowers, Inc., has two divisions. Division A has an investment base of $750,000 and produces (and sells) 100,000 units of Eyne at a market price of $10.00 per unit. Variable costs total $3.50 per unit, and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). Division B wants to purchase 25,000 units of Eyne from Division A. However, Division B is only willing to pay $6.75 per unit.
What is the minimum transfer price for the 25,000 unit order that Division A would accept if it wishes to maintain its pre-order contribution?
a. $3.50
b. $4.00
c. $4.80
d. $6.00