Question

DQ 1: Labor costs of an auto repair mechanic are seldom based on actual hours worked. Instead, this labor cost is based on an industry average of time estimated to complete a repair job. This means a customer can pay, for example, $120 for two hours of work on a car when the actual time worked was only one hour. Many experienced mechanics can complete repair jobs faster than the industry average. Assume that you are asked to complete such a survey for a repair center. The survey calls for objective input, and many questions require detailed cost data and analysis. The mechanics and owners know you have the survey and encourage you to complete it in a way that increases the average billable hours for repair work. Required Write a memorandum to the mechanics and owners that describes the direct labor analysis you will undertake in completing this survey

Answer 1

Dear All,

As we all are aware, the auto  repair industry gets paid not based on actual hours undertaken to do a particular job, but the industry average to do a job. If a mechanic takes 1 hour to complete a particular job and the industry average is 1.5 hours, the customer shall pay say $120*1.5 hours. This means that the 0.5 hours not worked can still be billed to the customer. This might seem unfair at a first glance but a detailed study shows the logic to it.

   Suppose the customer is billed based on actual hours worked, this will vary from mechanic to mechanic and an industry standardization of wages will never happen. On the contrary, if billing happens based on industry average, the efficient mechanics who constantly upgrade themselves will get paid better as billing will be done for more hours when the actual hours consumed are less. This will in turn drive the whole industry towards efficiency.

Instead of focusing on the wage per hour, the focus should be on coming close to or beating the industry average. As efficiency levels go up, so will the payscale.

Regards,

XYZ