Sent: Wednesday, May 07, 2014 5:57 PM

To: Scott.DeShetler@iceomatic.com

Cc: Cymbalsky, John; Winiarski, David W; Detlef Westphalen

Subject: FW: Markup Analysis - Commercial Ice Machines

Scott,

Below you will find answers to the questions you posed to John Cymbalsky on May 7, 2014 about

distribution chain markups used in the automatic commercial ice maker rulemaking analyses. I have

copied your questions into a word document, answered the questions, and pasted them into this e

‐ mail.

The original slide and e

‐ mail are attached for your reference. The questions and responses are as

follows:

1. Markup is typically stated in fixed (dollar) terms and as a percent. Can you explain what 1.3 6

, 1.45, etc. refers to. Is that a percent or a multiplier?

Example: if a wholesaler buys a machine for $100 is this model suggesting he/she is reselling it

at $136?

Response: Your example is correct. It is a multiplier. The 1.36 multiplier is applied to the

manufacturer selling price from the engineering analysis and is the same as a 36%

markup. Sometimes we refer to these as markup factors to better imply that they are

multipliers.

2. Is the table sequential? Example: from the first example if the wholesaler is selling the machine

for $136 to the dealer is the dealer selling it for $272 ($136x2.00)

Response: The data in columns shown on the slide are used independently for each distribution

chain and are independently applied to the manufacturer selling price. In this example

provided, if the original manufacturer selling price was $100, the price after passing through the

dealer would be $200 ($100 x 2.00). The average dealer markup of 2.00 shown in the slides

includes the wholesaler markup (i.e., the additional markup for the dealer alone accounts for

the difference between 1.36 and 2.00).

3. How is the Overall Weighted Average Markup calculated? Example: With an initial cost of $100

to the value chain and a final price of $272 from the previous example the value chain markup is

1.72 vs 1.76 ($272

‐ $100/$100)

Response: The overall weighted average markup is a weighted average of the 38% of units

assumed to be delivered through the wholesaler chain and the 62% of units assumed to be

delivered through the dealer chain. (0.38 x 1.36) + (0.62 x 2.0)

= 1.76 (rounded)

Using the original $100 manufacturer selling price, the overall weighted average price after

markup would be $176.

4. How are you making the calculation from pure markup to markup with sales tax? It looks like the

tax rate is different for the baseline versus the incremental. What are the assumptions as to tax

rates>

Response: The sales tax for all base and incremental markups shown on the presentation slide

is 7.15%. This is a population

‐ weighted average of the state sales tax rates obtained from an on

‐

line source. The source for the sales tax rates is cited in TSD Chapter 6, along with the date the

source was last accessed. Note that the values within the LCC model are not rounded to 2

decimal places as they were in the slide, and thus you may find a small rounding error if doing

hand calculations (e.g., applying the sales tax multiplier to the rounded 1.36 wholesaler markup

shown in the slide would seem to be 1.36 * 1.0715 = 1.46, but the unrounded value of 1.3569 *

1.0715 = 1.454 rounded to three decimals or shown on the slides as 1.45).If this response does not answer your questions, please let us know.

Thank you for taking the time to review and comment on our analyses.

Best regards,

Alan L Cooke

Research Economist

ENERGY & ENVIRONMENT DIRECTORATE

Pacific Northwest Na tional Laboratory

902 Battelle Boulevard

P.O. Box 999, MSIN K6-05

Richland, WA 99352 USA

Phone: (509) 372-4113

Fax: (509) 372-4370

alan.cooke@pnnl.gov

www.pnnl.gov