The UK division of Smart Sports is supplying its sister division in India with a team kit design. The UK’s variable costs are £1,250 for a design, which will be used on 500 team kits. However, the UK could charge £2,400 for design costs if they were selling them to external customers.

a) Ifthe UK division has spare capacity, what transfer price should be used when supplying India?

b) If the UK division is working at full capacity, what transfer price should be used when supplying India?

c) If India found an alternative local supplier who would sell them a design at an equivalent cost of £3.75 per team kit, in what circumstances should they agree to buy from the UK?