Magento 1.9 Flat Rate Shipping – Fix Price Not Applied at Checkout

Create a custom shipping method for this.
See here a tutorial on how to do it..

The only thing you need to change is the collectRates method.
Make it look like this:

public function collectRates(Mage_Shipping_Model_Rate_Request $request)
  {
    // skip if not enabled
    if (!Mage::getStoreConfig('carriers/'.$this->_code.'/active')) {
        return false;
    }
     $result = Mage::getModel('shipping/rate_result');
     // create new instance of method rate
     $method = Mage::getModel('shipping/rate_result_method');
      // record carrier information
      $method->setCarrier($this->_code);
      $method->setCarrierTitle(Mage::getStoreConfig('carriers/'.$this->_code.'/title'));

      // record method information
      $method->setMethod($this->_code);
      $method->setMethodTitle(Mage::getStoreConfig('carriers/'.$this->_code.'/title'));

      //calculate the price:
      $itemsCount = 0;
      foreach ($request->getAllItems() as $item){
           //get only real products
           if (!$item->getParentItemId()) {
               $itemsCount++;
           }
      }
      if ($itemsCount >= 3) {
          $price = 0;
      }
      else {
          $price = 6.75; //or you can use a config value
      }


      $method->setPrice($price);
      $result->append($method);
    }

    return $result;
  }

After spending a lot of time and testing I have the solution which ultimately Magento OOTB provides, Its just a matter for how to use it.

We can ship Bundle items separately. While creating bundle products use the following option.

Along with this, we have one more setting which is based on Clients’s business logic.

The Maximum package weight will always be 150 due to UPS limitation. “Packages Request Type” has two options

• Divide to equal weight (one request): If total cart weight is for eg. 180lb, ups will calculate the rate for 180/2=90lb and if for eg. for 90lb UPS says it will cost $100, the final cost will be $100*2 = 200. i.e. two packages of 90lbs each.

• Use origin weight (few requests): If cart weight is 180lbs with one child product of 50lb and other of 130lbs, UPS will calculate the separate rate for 130lbs and 50lbs package by sending two requests to API and sum them up. For eg. of 130lbs package costs $100 and 50lbs package cost $60 the final shipping cost will be $100+$60=$160. Let me know which is suitable in our case.