Accounting

Memo Assessment:

Labor costs of an auto repair mechanic are seldom based on actual hours worked. Instead, the 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 care 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 increase the average billable hours for repair work.

REQUIRED:

Write a one-page memorandum to the mechanics and owners that describes the direct labor analysis you will undertake in completing this survey.

MEMO – Should include the following points:

Objectivity: A statement about the need to be objective in the analysis.

Cost Accounting Estimation: The memo should outline how cost estimation is conducted. For example describe how regression analysis could be used

Business Concerns: The memo should point out that the repair business should follow established business practices for setting cost estimates. Examine fairness to customers, perception repair business over charging

Mechanic-Related Issues: quality of work, and mechanic compensation

MEMO FORMAT:

TO: MECHANICS AND OWNERS

FROM: ETHICAL STUDY

RE: ANALYSIS OF LABOR COSTS FOR SURVEY