Relevant cost in transfer price

Hello Tutor,
12. Product S is produced by Division A, and may be sold externally, or transferred to Division B for further processing.

The market selling price per kg of Product S is $6.10. Product S can be further processed by Division B into Product SX, and be sold to external markets for $6.80. The variable cost to further process Product S into product SX is $0.80.

Division A and Division B have been set up as profit centres, in which their managers are evaluated on the profits of their division.

External demand for Product S is only 1,500 kg per month, but 1,800 kg per month are produced since Division A operates at full capacity in order to meet demand for the other joint products of the process. Any unsold kg of Product S are scrapped at the end of the month.

Division B wishes to buy 500 kg per month of Product S from Division A.

What is the minimum transfer price that Division A would accept for 500 kg of Product S?

A.$0
B.$1,220
C.$1,360
D.$3,050

Here the answer is B 1220 ,So we should only count for 200 KG as opportunity cost a lost contribution
at market price of 6.1

and the remaining 300 is irrelevant

but even though they must have a variable cost ???

Thank,