The general principle on setting transfer prices that are in the organization's best interests is: A) outlay cost plus opportunity cost of the resource at the point of transfer. B) variable costs plus opportunity cost of the resource at the point of transfer. C) lost contribution margin less

The correct answer is A) outlay cost plus opportunity cost of the resource at the point of transfer.

Explanation:

In the commercial operations of companies, prices are usually set so that companies obtain a sufficient profit margin to carry out their exploitation cycle, obtain profitability for shareholders and at the same time be competitive in the market.

However, there are certain operations in which the intervenors can manipulate the sale prices of the goods or services they provide, since these transactions are carried out between entities or related persons. In these cases, a company can sell to another at a different price than the market, either higher or lower, so that the transfer price would not follow the rules of the free market, regulated by supply and demand, being able to transfer benefits or losses artificially from one company to another.

To avoid the alteration of prices between entities or related persons, transfer prices are used, whose fundamental principle is that the price to be fixed in transactions between related parties must be the market value (arm's length principle). This principle has been adopted by most of the world's economies and, in particular, by the countries that make up the Organization for Economic Cooperation and Development (OECD), which has established guidelines and doctrine on transfer pricing.

Therefore, companies that belong to the same group or have another type of relationship, should set prices in the same way as they would in normal conditions between independent parties, or what is the same, according to market value.

The pricing between related parties must also be documented, since the Tax Administration may adjust the transfer prices if it considers that they differ from those that would occur between independent parties.

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