## 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 .................................................................................................................. 6 3

LIST OF TABLES

Table 6A.2.1 Disaggregated Costs and Ex penses for Controls and Refrigeration
Distributors. ........................................................................................................ 6A-2 Table 6A.3.1 Mechanical Contractor Expe nses and Markups Used To Scale the

Incremental Ma rkups .......................................................................................... 6A-3
Table 6A.4.1 Distributor Incrementa l Markup Standard Deviation ........................................ 6A-4
Table 6A.4.2 Mechanical Contractor Ba seline 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 co mplete 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 thos e 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 Expe nses for Controls and Refrigeration

Distributors.

Item Percent of Revenue Scalin g 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 liabi lity & 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 Conditioni ng 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 contract or 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 assu med 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 we re 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 Expe nses 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 &

Incremental Depreciation charges during year $1,666,352 1.42% 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 dist ributions. In the case of distributors, survey data were available only in summary form at the nati onal level (Table 6A.4.1). In the case ofmechanical 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 base line markup distribution from national

statistics and the standard de viation of across-state markups. DOE defined the relative
standard deviation as the st andard deviation as a percent of the baseline markup. The distributor markup standard deviation is 5.7 percent, de rived 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-le vel markups and their standard deviation in
Table 6A.4.2.

6A-3

## DOE assumed that new construction a nd replacement market mechanical contractor markups have the same relative st andard deviation as th at 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 rela tive standard deviation as distributor a nd mechanical contractor baseline markups. It used this assu mption to calculate the standard deviation of

distributor and mechanical c ontractor incremental markups.

The relative standard deviations for mechanical contractors are not used directly to estimate markups as for wholesale trad e. The markups in construction vary systematically relative to their mean by stat e, so the state relative markups are applied individually to average markups by cl ass of construction in each state.

Table 6A.4.1 Distributor Increment al 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 Trad e: Subject Series - Misc Subjects: Gross Margin and its Componen ts
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.



### 6A-4

## 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



### 6A-5South 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 Serie s: 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