CUSMA Rules of Origin Regulations (SOR/2020-155)
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Regulations are current to 2024-04-01 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) | 5 | 5 | 10 |
| Direct material costs (DMC) | 10 | 5 | 15 |
| Totals | 15 | 10 | 25 |
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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