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How often should I replace my transfer case fluid has 120000mi. how much $ on 2001 Toyota Highlander

shop has recommended

Always good to change fluids in all lubricated areas before 100,000 miles. The fluids are the life blood of your moving components. Depends on your driving conditions, but I change mine every 50,000 on differentials, 40,000 on automatic transmission. Your transfer case only takes 1qt of gear oil, and only takes a few minutes to drain and refill. No Worries.
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I don't see any manufacturers recommendation for a service interval. There are ,however, intervals for inspecting the fluid. I would have your shop explain why it should be changed and if youn don't trust their recommendation then you might want to find a new shop you do trust.