(A) merchandise, such as toasters, that are small and may be moved easily and underestimate that of
I believe this is grammatically correct. D is more concise by putting small as adjective in front to clearly modify merchandise.
(B) merchandise, such as toasters, that are small and may be moved easily and underestimate it with
I believe "underestimate with" is the wrong idiom. Not 100% certain on this error.
(C) merchandise, such as toasters, that is small and may be moved easily and underestimate it with
S-V agreement with "merchandise" (plural) and "is" (singular). Same possible error with "underestimate with".
(D) small merchandise, such as toasters, that may be moved easily and underestimate that of
CORRECT.
(E) small merchandise, such as toasters, that may be moved easily and underestimate it with
Same possible idiom error with "underestimate with"