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CUSMA Rules of Origin Regulations (SOR/2020-155)

Regulations are current to 2022-05-02 and last amended on 2020-07-01. Previous Versions

APPENDIX BDirect Labour and Direct Material Ratio Method

Calculation of Direct Labour and Direct Material Ratio

For each good produced by the producer, a direct labour and direct material ratio is calculated by the formula

DLDMR = (DLC + DMC) ÷ (TDLC + TDMC)

where

DLDMR
is the direct labour and direct material ratio for the good;
DLC
is the direct labour costs of the good;
DMC
is the direct material costs of the good;
TDLC
is the total direct labour costs of all goods produced by the producer; and
TDMC
is the total direct material costs of all goods produced by the producer.

Allocation of Overhead to a Good

Overhead is allocated to a good as determined by the formula

OAG = O × DLDMR

where

OAG
is the overhead allocated to the good;
O
is the overhead to be allocated; and
DLDMR
is the direct labour and direct material ratio for the good.

Excluded Costs

Under paragraph 7(11)(b) of these Regulations, if excluded costs are included in overhead to be allocated to a good, the direct labour and direct material ratio used to allocate overhead to the good is used to determine the amount of excluded costs to be subtracted from the overhead allocated to the good.

Examples

Example 1

The following example illustrates the application of the direct labour and direct material ratio method used by a producer of a good to allocate overhead if the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(a) of these Regulations.

A producer produces Good A and Good B. Overhead (O) minus excluded costs (EC) is $30 and the other relevant costs are set out in the following table:

Good A ($)Good B ($)Total ($)
Direct labour costs (DLC)5510
Direct material costs (DMC)10515
Totals151025

Overhead allocated to Good A

OAG (Good A) = O ($30) × DLDMR ($15 ÷ $25)

OAG (Good A) = $18.00

Overhead allocated to Good B

OAG (Good B) = O ($30) × DLDMR ($10 ÷ $25)

OAG (Good B) = $12.00

Example 2

The following example illustrates the application of the direct labour and direct material ratio method used by a producer of a good to allocate overhead if the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(b) of these Regulations and if excluded costs are included in overhead.

A producer produces Good A and Good B. Overhead (O) is $50 (including excluded costs (EC) of $20). The other relevant costs are set out in the table to Example 1.

Overhead allocated to Good A

OAG (Good A) = [O ($50) × DLDMR ($15 ÷ $25)] - [EC ($20) × DLDMR ($15 ÷ $25)]

OAG (Good A) = $18.00

Overhead allocated to Good B

OAG (Good B) = [O ($50) × DLDMR ($10 ÷ $25)] − [EC ($20) × DLDMR ($10 ÷ $25)]

OAG (Good B) = $12.00

 
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