I've been selling on eBay for many years.  Some think I charge too much for shipping and some think I'm very reasonable.  Let me explain how I come up with shipping and handling costs and I believe this formula will work for you also.
First, let's compute our handling charges.  Ebay says they must be reasonable.  Here's how I come up with my handling charges:
The packaging for the item:  I either use a Tyvek or Kraft envelope for the majority of my items I ship first class mail.  Since yarns and fibers are not fragile, I don't have to worry about packing them in boxes and using bubble wrap.  I do ship some items that have to be protected but not many.  My cost for Tyvek envelopes runs about $.60-$.65 depending on the envelope size.  My Kraft envelopes run about $.15 cents each depending on size.
So, let's say $.60 for the mailer.
Then we have the material that I use to wrap the item in, I try and protect the yarns and fibers in either a plastic bag or tissue paper.  Both of which vary in cost depending on size.  The plastic bags ( i use the most)run about $35.00 per thousand and the tissue paper runs around $18.00 for 400 hundred sheets.  I've included what I pay for the S&H in these items.  So, one sheet of tissue paper is about 4.5 cents and one plastic bag is 3.5 cents.  I will say 5 cents for either just to round everything out.
We are now up to $.65 so far.
Lets consider the tape and paper and ink for the outside of the envelope for addressing the package.
The wide tape runs about $2.00 per roll and I can get 50 packages or so out of one roll. Cost per package: 4 cents each.  Paper is cheap but lets say one cent per label.  Ink is not cheap, and when you print the labels out using Paypal or the Postal Site, they use your colored ink along with your black ink when the postage label is printed. So, I get about 250-300  labels out of a set of black and colored ink cartridges on my printer, you might get a different amount.  My ink costs me $58.00 for pack of both.  That is about 20 cents to print the label.
Our cost now is up to $.90 cents.
Now,  I have had to hire part time help to assist me in packaging my eBay orders.  I pay her $8.00 per hour to help me  and if it takes her approximately 6 minutes to pull and pack an order and print the label, she has cost me 80 cents in wages.  I'm not including all the unseen costs involved with paying someone to work for you.
We are now up to $1.70 to pack and ship one order and we haven't even added the actual postage yet.
I do add on an additional 30 cents for misc. costs and for extra shipping materials to round out my fee to $2.00 for my handling charges on most items.  Included in that 30 cents would be things like wear and tear on the printer, as the printer will eventually have to be replaced one day from printing out so many labels.   I print about 300 shipping labels or more a month, so you know that my poor printer sees a lot of wear and use.
I like to use the eBay calculated postage rates for most of my items.  This way on my store inventory items, it saves me from updating 800+ auctions, every time the postal rates change.
The flaw to this way is that you need to know not only the weight of your item but also the weight of the packing materials and add that to the shipping weight.  That means you item if it weighs 6 ounces and the mailer weighs 1.1 ounces you total weight would be 7.1, but you would enter it as 8 ounces as fractions of an ounce are charged at the next level.  That is great for one item, but if you purchase several items, and the item weighs one ounce and the total weight is 3 ounces, if someone buys three of the same, eBay thinks the package will weigh 9 ounces and not 5 ounces.  So, I always ask that people email me for a combined invoice so I can recalculate the correct shipping weight.
The above formula works on domestic shipping really well, as I have the postman pick up all my domestic mail, but on international mail, I take it into the post office and pay for it there, so I can get a receipt with the amount of the postage and date of mailing.  For International mail I add an additional $1.50 to most items to cover this, as I have added costs like gas to get to the post office in town.
I try to be resonable in my shipping charges and will also run specials in my eBay store for free shipping on purchases over a certain amount.  That works well for me, for you something else might work better.
I hope this guide has been helpful for you in figuring out your own shipping and handling charges.  If you have questions, or comments about this guide or any of my other guides you can contact me through eBay. 
Thank you for reading this guide and hopefully you have found it helpful and informative.