BKC,
I drill my hole, glue in brass tube, square ends with a pen mill. As previously stated if the overall length of top half is a little long it is not a big deal. When it comes to parting off bottom of top half of pen for your centerband you may end up with one of 2 scenarios. I have worked some kits that state to part down to the brass, and some where you part a tenon to slide the centerband on, but there is still some material between the brass and centerband. That doesn't really matter either.
Your question is regarding how much to part off for your centerband. If instructions says 1/4" shoot for about the 3/16", no big deal. I do not know why instructions would say measure down from top and part off rest(which should be 1/4"), that never made sense to me to do it that way. Keep it simple, just measure up 3/16" or 1/4" from bottom of top half, where centerband will actually be, and only part off that portion.
As for the piece that was not used or left out. You should have 4 bushings. Top of cap, bottom of pen(writing end), center bushing, and center ring. The ring rides on the small diamter side of the center bushing. The small diameter side and ring should be the bottom end of the top half of the pen. After you part your material for the centerband (probally a small amount left on brass tube) you push the center ring up onto the tenon/tube you just made so the bottom of the top half is proper diameter to meet your centerband.
When working this style kit I will usually rough the blank round first, oversize of the bushings. Then part off my 3/16" for the centerband. then slip my ring up onto the tenon. Then shape my top half between top bushing and center(centerband) ring.
Hope this helps[
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