Calculating actual COST of shipment

[Hammerhead]

I need to understand how to configure the system so that we pay only for the actual postage necessary, not for what we actually charge for Shipping and Handling.  We're using VM2, ShippingAdvanced, and ShipWorks.

At this time we have only a single SKU, our shipping structure is flat rate:
$2.95 S&H for the first item, +$1 for each additional up to 10 units.

But the actual cost of postage is .71 cents, which does not include our cost of supplies and labor.  For some reason, Shipworks is picking up the total cost of $295 and wants to print a label at that price.

I'm not sure if this is an adjustment I need to make in VirtueMart, in the shipping plugin, or in Shipworks.  Hope someone can help.