A) Webster's West Division is currently purchasing the parts from an outside supplier for $36 per unit. The company's East Division, which has excess capacity, makes and sells the same parts to outside customers at a variable cost of $29 and a selling price of $39. If East begins sales to West, it will use the general transfer-pricing rule and will be able to reduce the variable cost on internal transfers by $3.

If sales to outsiders will not be affected, East should establish a transfer price of:

a. $39 b. $26 c.$33 d. $36 c. $29

B) What does a decentralized company expect from its transfer pricing system?

a. To increase the transferring segment's profits and the company's overall profits

b. To increase the company's overall profits only

c. To increase the transferring segment's profits only

d. To increase the buying segment's profits only