APPENDIX 6A. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS
 

TABLE OF CONTENTS
 

6A.1 INTRODUCTION ............................................................................................................ 61 

6A.2 DETAILED DISTRIBUTOR COST DATA .................................................................... 61 

6A.3 DETAILED MECHANICAL CONTRACTOR DATA................................................... 62 

6A.4 ESTIMATION OF DISTRIBUTOR AND CONTRACTOR MARK-UP STANDARD 

DEVIATIONS .................................................................................................................. 63
 

LIST OF TABLES 

Table 6A.2.1 Disaggregated Costs and Expenses for Controls and Refrigeration 

Distributors. ........................................................................................................ 6A-2 

Table 6A.3.1 Mechanical Contractor Expenses and Markups Used To Scale the 

Incremental Markups .......................................................................................... 6A-3
 

Table 6A.4.1 Distributor Incremental Markup Standard Deviation ........................................ 6A-4
 

Table 6A.4.2 Mechanical Contractor Baseline Mark-ups by State, 2002 ............................... 6A-5
 

6A-i 
 

APPENDIX 6A. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS 

6A.1 INTRODUCTION 

This appendix provides further details on information presented in the Markups 

analysis (preliminary TSD chapter 6.) 

6A.2 DETAILED DISTRIBUTOR COST DATA 

Based on data provided in the 2008 Profit Report (2007 Data) of the Heating Airconditioning & Refrigeration Distributors International (HARDI), Table 6.4.1 of 

Chapter 6, section 6.3, Estimation of Distributor Mark-ups shows wholesaler revenues 

and costs in aggregated form. Table 6A.2.1 below provides the complete breakdown of 

costs and expenses as provided in the 2008 Profit Report (2007 Data) for controls and 

refrigeration distributors. The column labeled “Scaling” in Table 6A.2.1 indicates which 

expenses the U.S. Department of Energy (DOE) assumed to scale with only the baseline 

markup and which it scaled with both the baseline and incremental markups. As 

described in Chapter 6, section 6.3, only those expenses that scale with baseline and 

incremental costs are marked-up when there is an incremental change in equipment costs. 

6A-1 
 

Table 6A.2.1 Disaggregated Costs and Expenses for Controls and Refrigeration 

Distributors. 

Item Percent of Revenue Scaling 

Cost of Goods Sold 68.8.0% 

Gross Margin 31.2% 

Payroll Expenses 19.5% Baseline 

Executive Salaries & Bonuses 3.39% 

Branch Manager Salaries and Commissions 2.4% 

Sales Executive Salaries & Commissions 0.3% 

Outside Sales Salaries & Commissions 2.4% 

Inside/Counter Sales/Wages 3.8% 

Purchasing Salaries/Wages 0.5% 

Credit Salaries/Wages 0.2% 

IT Salaries/Wages 0.2% 

Warehouse Salaries/Wages 1.1% 

Delivery Salaries/Wages 0.2% 

All Other Salaries/Wages & Bonuses 1.3% 

Payroll Taxes 1.3% 

Group Insurance 1.5% 

Benefit Plans 1.0% 

Occupancy Expenses 3.6% Baseline 

Utilities: Heat, Light, Power, Water 0.4% 

Telephone 0.4% 

Building Repairs & Maintenance 0.3% 

Rent or Ownership in Real Estate 2.5% 

Other Operating Expenses 4.8% Baseline & Incremental 

Advertising & Promotion 0.4% 

Insurance (business liability & casualty) 0.2% 

Depreciation 0.3% 

Vehicle Expenses 0.9% 

Personal Property Taxes/Licenses 0.2% 

Bad Debt Losses 0.2% 

All Other Operating Expenses 2.6% 

Total Operating Expenses 27.9% 

Operating Profit 3.3% Baseline & Incremental 

Other Income 0.6% 

Interest Expense 0.8% 

Other Non-operating Expenses 0.0% 

Profit Before Taxes 3.1% 

Source: Heating, Air-conditioning & Refrigeration Distributors International. 2008. 2008 Profit Report (2007 Data). 

Note: The distributor costs and expenses are percentage values as opposed to the per-dollar of sales revenue values shown in
 

Table 6.4.1.
 

6A.3 DETAILED MECHANICAL CONTRACTOR DATA 

Based on data in the 2005 edition of Financial Analysis for the HVACR 

Contracting Industry, published by the Air Conditioning Contractors of America 

(ACCA), Tables 6.5.1, 6.5.2, and 6.5.3 of Chapter 6, section 6.5, Estimation of 

Mechanical Contractor Markups provide mechanical contractor revenues and costs in 

aggregated form by ‘Cost of Goods Sold’ and ‘Gross Margin.’ The Financial Analysis 

report did not provide a more disaggregate tabulation of these costs and expenses. As in 

section 0, the gross margin category was assumed to scale only with the baseline markup. 

6A-2 
 

 

 

 

 

The more disaggregated breakdown of costs used to scale the incremental markup 

are shown in Table 6A.3.1 by both dollar value and percentage terms from the 2002 

Census of Business. As the ACCA data were used to calculate the baseline markup, only 

the categories in the ‘Scaling’ column that scaled with both the baseline and incremental 

markups are marked. 

Table 6A.3.1 Mechanical Contractor Expenses and Markups Used To Scale the 

Incremental Markups 

Item Dollar Value Percentage Scaling 

Total Cost of Equipment Sales $77,482,735 66.01% 

Cost of materials, components, and supplies $37,813,136 32.21% 

Payroll, construction workers $25,619,932 21.83% 

Cost of construction work subcontracted out to others $12,462,622 10.62% 

Cost of selected power, fuels, and lubricants $1,587,045 1.35% 

Gross Margin $39,898,412 33.99% 

Payroll Expenses $19,648,990 16.74% 

Fringe benefits, all employees $9,326,660 7.95% 

Payroll, other employees $10,322,330 8.79% 

Occupancy Expenses 

Rental cost for machinery, equipment, and buildings + 

Purchased communication services $2,926,539 2.49% 

Other Operating Expenses $2,969,716 2.53% Baseline & 

Depreciation charges during year $1,666,352 1.42% Incremental 

Cost of repairs to buildings and other structures + Cost of 

repairs to machinery and equipment $1,303,364 1.11% 

Net Profit Before Income Taxes $14,353,167 12.23% 

Baseline & 

Incremental 

Source: U.S. Census Bureau. 2002. Plumbing, Heating, and Air-Conditioning Contractors: 2002. Report EC02-231-238220, Table 4.
 

Detailed Statistics for Establishments: 2002.
 

Note: Mechanical contractor costs and expenses are first presented as total dollar values and than converted to percentage values. This
 

is in contrast to the per dollar of sales revenue values shown in Table 6.5.4.
 

6A.4 ESTIMATION OF DISTRIBUTOR AND CONTRACTOR MARK-UP 

STANDARD DEVIATIONS 

DOE used U.S. Census survey data to estimate WICF equipment distributor, and 

mechanical contractor markup distributions. In the case of distributors, survey data were 

available only in summary form at the national level (Table 6A.4.1). In the case of 

mechanical contractors, the survey data include state-level heating, ventilating, and airconditioning (HVAC) total value of work, number of firms, cost of goods sold, cost of 

subcontract work, cost of materials, and construction payroll as shown in Table 6A.4.2, 

DOE estimated the size of the baseline markup distribution from national 

statistics and the standard deviation of across-state markups. DOE defined the relative 

standard deviation as the standard deviation as a percent of the baseline markup. The 

distributor markup standard deviation is 5.7 percent, derived from the average markup 

and published relative markup of 7.7 percent, as shown in Table 6A.4.1. The mechanical 

contractor markup standard deviation is 5.6 percent and the relative markup is 3.7 

percent, derived from the average of state-level markups and their standard deviation in 

Table 6A.4.2. 

6A-3 
 

 

 

 

 

DOE assumed that new construction and replacement market mechanical 

contractor markups have the same relative standard deviation as that developed from the 

baseline markups for all contractors. The fact that the mechanical contractor relative 

standard deviation is 3.7 percent of the baseline markup implies that the standard 

deviation for the replacement and new markets, relative to their respective baseline 

markups, is also 3.7 percent. 

DOE also assumed that distributor and mechanical contractor incremental 

markups have the same relative standard deviation as distributor and mechanical 

contractor baseline markups. It used this assumption to calculate the standard deviation of 

distributor and mechanical contractor incremental markups. 

The relative standard deviations for mechanical contractors are not used directly 

to estimate markups as for wholesale trade. The markups in construction vary 

systematically relative to their mean by state, so the state relative markups are applied 

individually to average markups by class of construction in each state. 

Table 6A.4.1 Distributor Incremental Markup Standard Deviation 

Number of Firms Sales ($000) Cost of Goods Sold ($000) Gross Margin ($000) 

5180 $17,715,524 

Cv for 4237 = 1.6% 

$12,789,493 $4,627,533 

Cv for 4237 = 7.7% 

Since Cv = σ / μ, σ = Cv / μ = 0.077 / 1.362 = 0.057 

Where: 

Cv = Coefficient of variation 

σ = Standard deviation 

μ = mean value 

Sources: U.S. Census Bureau. 2005. Sector 42: Wholesale Trade: Subject Series - Misc Subjects: Gross Margin and its Components 

for Merchant Wholesalers for the United States: 2002 @ http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-

_skip=0&-ds_name=EC0242SXSB06&-_lang=en 

U.S. Census Bureau. 2005. Annual Report for Wholesale Trade: 2002-2003. Report BW(MSBO)/04-A.
 

http://www.census.gov/svsd/www/msbo2003.pdf
 

U.S. Bureau of Census. 2005. Table 4. Estimated Coefficients of Variation of Annual Sales, End-of-Year Inventories, Purchases, 

Gross Margins, and Gross Margin/Sales Ratios for Merchant Wholesalers, excluding Manufacturers' Sales Branches and Offices 

(MSBOs) @ http://www.census.gov/svsd/www/atstable4.txt
 

Notes: The data are at the national level.
 

NAICS 4237 applies to Hrdwr, plumb & heat equip & supp merchant wholesalers and 42373 applies to Warm air heating & AC equip 

merchant wholesalers.
 

Cv = coefficient of variation. 

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Table 6A.4.2 Mechanical Contractor Baseline Mark-ups by State, 2002 

State 

Number of 

Firms 

Value of 

Construction 

($000) 

Cost of 

Subcontract 

Work ($000) 

Cost of 

Materials 

($000) 

Construction 

Payroll 

($000) 

Baseline 

Markup 

Relative 

Markup 

Alabama 1,425 1,490,919 151,240 547,075 308,967 1.480 0.981 

Alaska 229 384,009 68,230 110,136 73,456 1.525 1.010 

Arizona 1,510 1,958,430 141,885 776,733 420,945 1.462 0.969 

Arkansas 1,045 799,157 65,491 305,198 154,099 1.523 1.009 

California 7,272 12,346,970 1,172,183 4,018,408 2,701,227 1.565 1.037 

Colorado 2,015 2,354,183 235,012 821,432 547,419 1.468 0.973 

Connecticut 1,321 1,580,361 156,607 505,340 320,528 1.609 1.066 

Delaware 306 460,330 42,001 150,096 112,360 1.512 1.002 

District of Columbia 22 117,971 D 29,263 21,379 1.490 0.987 

Florida 5,069 6,255,428 616,097 2,270,555 1,263,030 1.507 0.999 

Georgia 2,534 3,436,673 380,819 1,226,368 653,972 1.520 1.007 

Hawaii 280 358,921 36,053 129,870 65,305 1.552 1.029 

Idaho 594 546,349 47,466 211,341 133,160 1.394 0.924 

Illinois 3,848 6,112,025 605,868 1,770,254 1,504,166 1.575 1.044 

Indiana 1,867 2,964,787 418,904 869,816 753,388 1.452 0.962 

Iowa 1,066 1,189,684 133,934 428,842 265,529 1.436 0.952 

Kansas 966 1,225,986 155,011 431,331 264,876 1.440 0.954 

Kentucky 1,219 1,357,063 121,960 469,639 307,205 1.510 1.000 

Louisiana 1,469 1,439,726 174,283 497,169 291,819 1.495 0.990 

Maine 458 393,322 36,149 138,587 76,034 1.568 1.039 

Maryland 2,024 3,902,613 583,237 1,251,986 797,428 1.482 0.982 

Massachusetts 2,520 3,531,662 503,155 1,038,151 713,798 1.566 1.038 

Michigan 3,051 4,334,221 492,957 1,338,229 957,980 1.554 1.030 

Minnesota 1,635 2,860,054 280,556 958,849 599,935 1.555 1.030 

Mississippi 655 754,652 70,985 283,993 132,824 1.547 1.025 

Missouri 1,816 2,538,706 276,621 849,770 581,090 1.487 0.985 

Montana 432 356,269 44,987 135,009 68,332 1.435 0.951 

Nebraska 683 819,918 90,582 321,124 177,052 1.393 0.923 

Nevada 498 1,093,329 78,259 350,851 236,089 1.644 1.089 

New Hampshire 531 535,046 52,209 179,259 123,215 1.509 1.000 

New Jersey 3,551 4,210,275 466,668 1,230,617 949,465 1.591 1.054 

New Mexico 599 543,713 51,116 191,757 104,423 1.566 1.037 

New York 5,750 7,561,952 949,038 2,335,220 1,595,864 1.550 1.027 

North Carolina 2,978 3,231,394 339,388 1,127,518 684,958 1.502 0.995 

North Dakota 272 291,850 34,971 105,405 66,002 1.414 0.937 

Ohio 3,514 4,611,590 502,061 1,470,907 1,037,116 1.532 1.015 

Oklahoma 1,158 906,621 77,207 341,921 185,111 1.500 0.994 

Oregon 1,031 1,440,390 132,523 506,559 332,135 1.483 0.983 

Pennsylvania 3,653 5,929,629 639,074 1,766,004 1,193,465 1.648 1.092 

Rhode Island 397 490,872 60,217 171,994 99,426 1.480 0.981 

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South Carolina 1,472 1,395,359 111,394 518,386 327,238 1.458 0.966 

South Dakota 337 333,758 22,754 141,297 58,708 1.498 0.993 

Tennessee 1,370 2,292,875 201,748 846,426 459,475 1.521 1.008 

Texas 5,653 8,061,607 807,501 2,889,320 1,746,739 1.481 0.981 

Utah 892 1,010,317 113,775 353,958 202,682 1.507 0.999 

Vermont 282 208,056 19,987 77,251 43,158 1.482 0.982 

Virginia 2,547 3,036,417 254,085 1,074,309 700,273 1.497 0.992 

Washington 1,602 2,344,257 222,282 773,211 543,668 1.523 1.009 

West Virginia 416 296,407 19,109 99,089 71,401 1.563 1.036 

Wisconsin 1,839 2,578,014 193,399 941,806 617,852 1.471 0.974 

Wyoming 262 166,318 D 59,507 35,307 1.451 0.962 

Average Baseline Markup 

Standard Deviation 

Relative Standard Deviation 

1.509 1.000 

0.056 

0.037 

Sources: U.S. Bureau of the Census. American Factfinder. 2002 Economic Census. Sector 23: Construction: Geographic Area Series: 

General Statistics for Establishments by State: 2002. Accessed on March 25, 2009 at 

http://factfinder.census.gov/servlet/IBQTable?_bm=y&-fds_name=EC0200A1&-_industry=23822&-NAICS2002sector=8699097&-

ib_type=NAICS2002&-_lang=en&-geo_id=&-NAICS2002=23822&-ds_name=EC0223A1&-NAICS2002subsector=8701562 and 

 Bureau of the Census. American Factfinder. 2002 Economic Census. Sector 23: Construction: Industry Series: General Statistics for 

Establishments by State: 2002. Accessed March 25, 2009 at http://factfinder.census.gov/servlet/IBQTable?_bm=y&-

fds_name=EC0200A1&-_industry=238220&-NAICS2002sector=8699097&-ib_type=NAICS2002&-_lang=en&-geo_id=&-

NAICS2002=238220&-ds_name=EC0223I03&-NAICS2002subsector=8701562 

Notes: The Census Bureau withheld data for some states.
 

Markups may vary across states for several reasons, including differences in firm size.
 

6A-6