Timing-chain quote, overtime and a repeat repair
A small fleet workshop quoted a timing-chain replacement on a 2018 2.0 L diesel van at 6.5 labour hours, £68/h, parts £410 with 20% markup, and a 10% contingency. The job actually took 9.0 hours because the lower chain cover had to be removed after a broken bolt; two technicians worked 1.5 hours overtime at £102/h; an extra £95 seal kit was used; and the van returned after 600 km with a rattle traced to a mis-timed oil pump chain. The customer is a contracted delivery firm with three similar vans due for service. The workshop owner wants to know whether the original quote was underpriced, who should absorb the comeback, and what records should change before quoting the next vans. The workshop's target gross margin is 35% on parts and labour, and its comeback rate has risen from 2% to 7% this quarter.
1. Calculate the quoted revenue using clearly stated assumptions, the actual direct cost, and the gross margin. Decide whether the original quote was underpriced.
Read the worked answer
Assumption: the £410 is the parts cost, and 20% markup gives a parts selling price of £410 × 1.20 = £492. Labour selling price is 6.5 × £68 = £442. Subtotal = £934. A 10% contingency adds £93.40, so quoted revenue = £1,027.40.
For actual labour, assume the 9.0 hours are total hours and include 3.0 overtime hours (two technicians × 1.5 h). Cost = 6.0 × £68 + 3.0 × £102 = £408 + £306 = £714. Equivalently, 9.0 h at £68 plus an overtime premium of 3.0 × £34 gives the same £714. Add parts cost £410 and the extra seal kit £95: actual direct cost = £714 + £410 + £95 = £1,219.
Gross profit = £1,027.40 − £1,219 = −£191.60, a margin of about −18.7% on quoted revenue. The quote was therefore underpriced, and this excludes workshop overhead, so the true loss is larger. If the £410 were already a selling price rather than a cost, the calculation would change, so the estimate record must distinguish parts cost from parts selling price.
2. Recommend how to handle the comeback and what estimating and record changes to make before quoting the three similar vans. Include a revised pricing basis and two measurable controls.
Read the worked answer
The comeback is a workmanship failure: the oil pump chain was mis-timed during the repair. The workshop should absorb the rework and any consequential inspection, not charge the delivery firm, because the fault arose from the repair process. The broken bolt explains extra time but not incorrect timing; the timing procedure and sign-off failed.
The 20% parts markup is also inconsistent with a 35% gross-margin target. A 20% markup on cost gives only 82/492 = 16.7% gross margin on selling price. To achieve 35% margin, price = cost / (1 − 0.35), so £410 cost becomes £410 / 0.65 = £630.77, before any seal kit or fastener allowance. Labour should be quoted from realistic operation times, not a 10% arbitrary contingency. For the next vans, quote 9.0 h only if the same bolt/cover risk is expected, and add a separately itemised fastener/seal allowance rather than hiding it in contingency.
Two measurable controls: (1) record estimated versus actual hours by operation and review the variance after every job; (2) require technician sign-off on timing marks, torque values and oil-pump drive alignment, with a comeback cause code. Track first-time-right and Pareto the 7% comeback rate before quoting the next three vans.