CUSMA Rules of Origin Regulations (SOR/2020-155)
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Regulations are current to 2024-11-26 and last amended on 2020-07-01. Previous Versions
APPENDIX CDirect Cost Ratio Method
Direct Overhead
Direct overhead is allocated to a good on the basis of a method based on the criterion of benefit, cause or ability to bear.
Indirect Overhead
Indirect overhead is allocated on the basis of a direct cost ratio.
Calculation of Direct Cost Ratio
For each good produced by the producer, a direct cost ratio is calculated by the formula
DCR = (DLC + DMC + DO) ÷ (TDLC + TDMC + TDO)
where
- DCR
- is the direct cost ratio for the good;
- DLC
- is the direct labour costs of the good;
- DMC
- is the direct material costs of the good;
- DO
- is the direct overhead related to the good;
- TDLC
- is the total direct labour costs of all goods produced by the producer;
- TDMC
- is the total direct material costs of all goods produced by the producer; and
- TDO
- is the total direct overhead related to all goods produced by the producer.
Allocation of Indirect Overhead to a Good
Indirect overhead is allocated to a good as determined by the formula
IOAG = IO × DCR
where
- IOAG
- is the indirect overhead allocated to the good;
- IO
- is the indirect overhead of all goods produced by the producer; and
- DCR
- is the direct cost ratio of the good.
Excluded Costs
Under paragraph 7(11)(b) of these Regulations,
(a) if excluded costs are included in direct overhead to be allocated to a good, those excluded costs are subtracted from the direct overhead allocated to the good; and
(b) if excluded costs are included in indirect overhead to be allocated to a good, the direct cost ratio used to allocate indirect overhead to the good is used to determine the amount of excluded costs to be subtracted from the indirect overhead allocated to the good.
Examples
Example 1
The following example illustrates the application of the direct cost ratio method used by a producer of a good to allocate indirect 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. Indirect overhead (IO) minus excluded costs (EC) is $30. The other relevant costs are set out in the following table:
| Good A ($) | Good B ($) | Total ($) | |
|---|---|---|---|
| Direct labour costs (DLC) | 5 | 5 | 10 |
| Direct material costs (DMC) | 10 | 5 | 15 |
| Direct overhead (DO) | 8 | 2 | 10 |
| Totals | 23 | 12 | 35 |
Indirect overhead allocated to Good A
IOAG (Good A) = IO ($30) × DCR ($23 ÷ $35)
IOAG (Good A) = $19.71
Indirect overhead allocated to Good B
IOAG (Good B) = IO ($30) × DCR ($12 ÷ $35)
IOAG (Good B) = $10.29
Example 2
The following example illustrates the application of the direct cost ratio method used by a producer of a good to allocate indirect 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 indirect overhead.
A producer produces Good A and Good B. The indirect overhead (IO) is $50 (including excluded costs (EC) of $20). The other relevant costs are set out in the table to Example 1.
Indirect overhead allocated to Good A
IOAG (Good A) = [IO ($50) × DCR ($23 ÷ $35)] − [EC ($20) × DCR ($23 ÷ $35)]
IOAG (Good A) = $19.72
Indirect overhead allocated to Good B
IOAG (Good B) = [IO ($50) × DCR ($12 ÷ $35)] − [EC ($20) × DCR ($12 ÷ $35)]
IOAG (Good B) = $10.28
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