Labor costs of an auto mechanic are seldom based on actual hours worked. (Many o

Question

Labor costs of an auto mechanic are seldom based on actual hours worked. (Many of us realize this when we have serviced our automobiles). Instead, the amount paid a mechanic is based on an industry average of time estimated to complete a repair job. The repair shop bills the customer for the industry average amount of time at the repair center’s billable cost per hour. This means a customer can pay, for example, $120 for two hours if work on the car when the actual time was only one hour. Many experienced mechanics can complete repair job faster than the industry average. The average data are compiled by engineering studies and surveys conducted in the auto repair business.

Assume that you, as the auto shop’s accountant, 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.

For this discussion, describe the direct labor analysis you would undertake to complete this survey and why you would take that particular approach to gathering data.

Explanation / Answer

Best Answer: Dear Vaya,

Couple of considerations: For an industry "average" to exist, sure, you would have some shops functioning ahead of the curve and performing more efficiently, while others perform less and take significantly longer...which means they are charging more for their services and perhaps lack the technical skills (it takes them longer because simply put, they just don't know what they're doing)

Would most people be willing to pay a little more from a quality shop that gets the work completed timely and accurately? Sure, that's why many people take cars to the dealer for service, rather than the local small-time shop.

So the question you posed was assume you were to prepare a survey for a repair center...if you are only looking at that location, then you are lacking true industry data, it's really only one data point and will lack sufficient statistical industry comparisons...it will tell you the time consumption for that specific location, which could be very helpful in analyzing pricing data.

Also, you are not fully capturing the time to perform jobs if you pad the data or otherwise inflate the time required, so you are unable to fully calculate employee utilization and you're also unable to analyze job profitability...should the shop be doing more cheap oil changes or more expensive transmission repair?

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