If the return is discretionary your expected the reduce the refund amount by the cost of the label you paid for. This will make you whole. If discretionary, the buyer chooses a pre-paid label and is told the cost of the label will be deducted from the refund already.
> 2.) Not only is this a problem, but it is charging us $7.15 to have the item returned to us (sometimes broken, so we can’t even resell it!) Our item should only cost us $3.20 to return.
You are correct that Amazon bases the cost of the return on the ‘shipping weight’ listed on the product page. If the shipping weight is set to less than 1lb, then the cost will be $3.20 – based on the [Shipping costs for seller fulfilled returns|https://sellercentral.amazon.com/gp/help/202103400/ref=ag_202103400_cont_202072200] help page.
On the ‘Return Settings’ page, there is a notes section at the bottom. These notes are provided to buyers upon creating their return. We use this to explain that items that are returned damaged due to improper shipping will be assessed restock fees. We provide them generic instructions on how to ensure items are returned in good condition. This has dramatically reduced damaged returns due to poor packing.