APPENDIX A. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS

TABLE OF CONTENTS

A.1 INTRODUCTION .......................................................................................................... A­1

A.2 DETAILED WHOLESALER COST DATA ................................................................. A­1

A.3 DETAILED MECHANICAL CONTRACTOR DATA................................................. A­2

A.4 DETAILED GENERAL CONTRACTOR COST DATA.............................................. A­3

A.5 ESTIMATION OF WHOLESALER AND CONTRACTOR MARK­UP

STANDARD DEVIATIONS.......................................................................................... A­4

LIST OF TABLES

Table A.2.1 Disaggregated Costs and Expenses for Wholesalers. ............................................ A­2

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

Incremental Markups....................................................................................... A­3

Table A.4.1 General Contractor Expenses and Markups........................................................... A­4

Table A.5.1 Wholesaler Incremental Markup Standard Deviation............................................ A­5

Table A.5.2 Mechanical Contractor Baseline Mark­ups by State, 2002 ................................... A­6

Table A.5.3 General Contractor Baseline Mark­ups by State, 2002 ......................................... A­7

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APPENDIX A. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS

A.1 INTRODUCTION

This appendix provides further details on information presented in Chapter 6,

markups for equipment price determination.

A.2 DETAILED WHOLESALER COST DATA

Based on data provided in the 2005 Profit Report (2004 Data) of the Heating

Air­conditioning & Refrigeration Distributors International (HARDI), Table X.3.1 of

Chapter 7, section X.3, Estimation of Wholesale Mark­ups shows wholesaler revenues

and costs in aggregated form.

Table A.2.1 below provides the complete breakdown of costs and expenses as

provided in the 2005 Profit Report (2004 Data). The column labeled “Scaling” in

Table A.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 7, section X.3, only those

expenses that scale with baseline and incremental costs are marked­up when there is an

incremental change in equipment costs.

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EERE-2007-BT-STD-0012 COMMENT 02
Table A.2.1 Disaggregated Costs and Expenses for Wholesalers.

Item Percent of Revenue Scaling

Cost of Goods Sold 69.8%

Gross Margin 30.2%

Payroll Expenses 19.5% Baseline

Executive Salaries & Bonuses 3.5%

Sales Executive Salaries & Commissions 0.5%

Outside Sales Salaries & Commissions 2.9%

Inside/Counter Sales/Wages 5.5%

Warehouse Salaries/Wages 0.9%

Delivery Salaries/Wages 0.3%

All Other Salaries/Wages & Bonuses 2.6%

Payroll Taxes 1.3%

Group Insurance 1.4%

Benefit Plans 0.6%

Occupancy Expenses 3.4% Baseline

Utilities: Heat, Light, Power, Water 0.4%

Telephone 0.4%

Building Repairs & Maintenance 0.2%

Rent or Ownership in Real Estate 2.4%

Other Operating Expenses 4.3% Baseline & Incremental

Advertising & Promotion 0.3%

Insurance (business liability & casualty) 0.2%

Depreciation 0.3%

Vehicle Expenses 0.8%

Personal Property Taxes/Licenses 0.1%

Bad Debt Losses 0.1%

All Other Operating Expenses 2.5%

Total Operating Expenses 27.2%

Operating Profit 3.0% Baseline & Incremental

Other Income 0.7%

Interest Expense 0.5%

Other Non­operating Expenses 0.0%

Profit Before Taxes 3.2%

Source: Heating, Airconditioning & Refrigeration Distributors International. 2005. 2005 Profit Report (2004 Data).

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

Table X.3.1.

A.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 X.4.1, X.4.2, and X.4.3 of Chapter 7, section X.4, 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 A.2, the gross margin category was assumed to scale only with the baseline

markup.

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EERE-2007-BT-STD-0012 COMMENT 02
The more disaggregated breakdown of costs used to scale the incremental markup

are shown in Table A.3.1 by both dollar value and percentage terms. 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 A.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 Air­Conditioning Contractors: 2002. Report EC02­231­238220, Table 4.

Detailed Statistics for Establishments: 2002.

Note: General 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 X.4.4.

A.4 DETAILED GENERAL CONTRACTOR COST DATA

Based on U.S. Department of Census data, Table X.5.1 of Chapter 7, section X.5,

General Contractor Expenses and Markups shows general contractor revenues and costs

in aggregated form. Table A.4.1 below shows the complete breakdown of costs and

expenses provided by the U.S. Department of Census. The column labeled “Scaling” in

Table A.2.1 indicates which expenses DOE assumed to scale with only the

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

described in Chapter 7, section X.3, only those expenses that scale with baseline and

incremental costs are marked­up when there is an incremental change in equipment costs.

DOE defined the relative standard deviation as the standard deviation as a percent

of the baseline markup. The wholesaler relative standard deviation is 8.6 percent, the

general contractor relative standard deviation is 9.0 percent, and the mechanical

contractor for residential and light commercial construction is 7.9 percent of their

respective baseline markups. The fact that the mechanical contractor relative standard

deviation is 7.9 percent of the baseline markup implies that the standard deviation for the

replacement and new markets, relative to their respective baseline markups, is also 3.1

percent.

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EERE-2007-BT-STD-0012 COMMENT 02
DOE also assumed that wholesaler, general contractor, and mechanical contractor

incremental markups have the same relative standard deviation as wholesaler, general

contractor, and mechanical contractor baseline markups. It used this assumption to

calculate the standard deviation of wholesaler, general contractor, and mechanical

contractor incremental markups.

Table A.4.1 General Contractor Expenses and Markups

Item Dollar Value Percentage Scaling

Total Cost of Equipment Sales $187,494,802 77.54% Baseline

Cost of materials, components, and supplies $36,592,170 15.13%

Payroll, construction workers $16,516,884 6.83%

Cost of construction work subcontracted out to others $132,835,992 54.94%

Cost of selected power, fuels, and lubricants $1,549,756 0.64%

Gross Margin $54,310,758 22.46%

Payroll Expenses $19,517,206 8.07% Baseline

Fringe benefits, all employees $6,823,998 2.82%

Payroll, other employees $12,693,208 5.25%

Occupancy Expenses

Rental cost for machinery, equipment, and buildings +

Purchased communication services $3,737,333 1.55% Baseline

Other Operating Expenses $2,747,096 1.14% Baseline &

Depreciation charges during year $1,318,065 0.55% Incremental

Cost of repairs to buildings and other structures + Cost of

repairs to machinery and equipment $1,429,031 0.59%

Net Profit Before Income Taxes $28,309,123 11.71%

Baseline &

Incremental

Source: U.S. U.S. Census Bureau. 2002. Commercial and Institutional Building Construction: 2002.

Report EC02­231­236220, Table 4. Detailed Statistics for Establishments: 2002.

Note: General 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 X.5.1.

A.5 ESTIMATION OF WHOLESALER AND CONTRACTOR MARK­UP

STANDARD DEVIATIONS

DOE used U.S. Census survey data to estimate PTAC/PTHP equipment

wholesaler, general contractor, and mechanical contractor markup distributions. In the

case of wholesalers, survey data were available only at the national level. In the case of

mechanical and general contractors, the survey data include state­level 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 A.5.2 and Table A.5.3.

DOE estimated the size of the baseline markup distribution from the standard

deviation of across­state markups. The wholesale markup standard deviation is 0.06, the

general contractor markup standard deviation is 0.07, and the mechanical contractor

markup standard deviation is 0.06. 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.

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EERE-2007-BT-STD-0012 COMMENT 02
Table A.5.1 Wholesaler 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 / 1.37 = 0.06

Where:

Cv = Coefficient of variation

σ = Standard deviation

μ = mean value [from Table X.4.1]

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: 2002­2003. Report BW(MSBO)/04­A.

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

U.S. Bureau of Census. 2005. Table 4. Estimated Coefficients of Variation of Annual Sales, End­of­Year 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 A.5.2 Mechanical Contractor Baseline Mark­ups 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

Alabama 1,425 1,490,919 151,240 547,075 308,967 1.48

Arizona 1,510 1,958,430 141,885 776,733 420,945 1.46

Arkansas 1,045 799,157 65,491 305,198 154,099 1.52

California 7,272 12,346,970 1,172,183 4,018,408 2,701,227 1.56

Colorado 2,015 2,354,183 235,012 821,432 547,419 1.47

Connecticut 1,321 1,580,361 156,607 505,340 320,528 1.61

Delaware 306 460,330 42,001 150,096 112,360 1.51

Florida 5,069 6,255,428 616,097 2,270,555 1,263,030 1.51

Georgia 2,534 3,436,673 380,819 1,226,368 653,972 1.52

Hawaii 280 358,921 36,053 129,870 65,305 1.55

Idaho 594 546,349 47,466 211,341 133,160 1.39

Illinois 3,848 6,112,025 605,868 1,770,254 1,504,166 1.58

Indiana 1,867 2,964,787 418,904 869,816 753,388 1.45

Iowa 1,066 1,189,684 133,934 428,842 265,529 1.44

Kansas 966 1,236,292 155,011 431,331 264,876 1.45

Kentucky 1,219 1,357,063 121,960 469,639 307,205 1.51

Louisiana 1,469 1,439,726 174,283 497,169 291,819 1.49

Maine 458 393,322 36,149 138,587 76,034 1.57

Maryland 2,024 3,902,613 583,237 1,251,986 797,428 1.48

Massachusetts 2,520 3,531,662 503,155 1,038,151 713,798 1.57

Michigan 3,051 4,334,221 492,957 1,338,229 957,980 1.55

Minnesota 1,635 2,860,054 280,556 958,849 599,935 1.55

Mississippi 655 754,652 70,985 283,993 132,824 1.55

Missouri 1,816 2,538,706 276,621 849,770 581,090 1.49

Montana 432 356,269 44,987 135,009 68,332 1.43

Nebraska 683 819,918 90,582 321,124 177,052 1.39

Nevada 498 1,093,329 78,259 350,851 236,089 1.64

New Hampshire 531 535,046 52,209 179,259 123,215 1.51

New Jersey 3,551 4,210,275 466,668 1,230,617 949,465 1.59

New Mexico 599 543,713 51,116 191,757 104,423 1.57

New York 5,750 7,561,952 949,038 2,335,220 1,595,864 1.55

North Carolina 2,978 3,231,394 339,388 1,127,518 684,958 1.50

North Dakota 272 291,850 34,971 105,405 66,002 1.41

Ohio 3,514 4,611,590 502,061 1,470,907 1,037,116 1.53

Oklahoma 1,158 906,621 77,207 341,921 185,111 1.50

Oregon 1,031 1,440,390 132,523 506,559 332,135 1.48

Pennsylvania 3,653 5,929,629 639,074 1,766,004 1,193,465 1.65

Rhode Island 397 490,872 60,217 171,994 99,426 1.48

South Carolina 1,472 1,395,359 111,394 518,386 327,238 1.46

South Dakota 337 333,758 22,754 141,297 58,708 1.50

Tennessee 1,370 2,292,875 201,748 846,426 459,475 1.52

Texas 5,653 8,061,607 807,501 2,889,320 1,746,739 1.48

Utah 892 1,010,317 113,775 353,958 202,682 1.51

Vermont 282 208,056 19,987 77,251 43,158 1.48

Virginia 2,547 3,036,417 254,085 1,074,309 700,273 1.50

Washington 1,602 2,344,257 222,282 773,211 543,668 1.52

Wisconsin 1,839 2,578,014 193,399 941,806 617,852 1.47

Average Baseline Markup

Standard Deviation

1.51

0.06

Sources: U.S. Bureau of Census. 2005. 2002 Economic Census Construction Geographic Area Series. Reports EC02­23A­AL,

EC02­23A­AZ, EC02­23A­AR, EC02­23A­CA, EC02­23A­CO, EC02­23A­CT, EC02­23A­DE, EC02­23A­FL, EC02­23A­GA,

EC02­23A­HI, EC02­23A­ID, EC02­23A­IL, EC02­23A­IN, EC02­23A­IA, EC02­23A­KS, EC02­23A­KY, EC02­23A­LA, EC02­

23A­ME, EC02­23A­MD, EC02­23A­MA, EC02­23A­MI, EC02­23A­MN, EC02­23A­MS, EC02­23A­MO, EC02­23A­MT, EC02­

23A­NE, EC02­23A­NV, EC02­23A­NH, EC02­23A­NJ, EC02­23A­NM, EC02­23A­NY, EC02­23A­NC, EC02­23A­ND, EC02­

23A­OH, EC02­23A­OK, EC02­23A­OR, EC02­23A­PA, EC02­23A­RI, EC02­23A­SC, EC02­23A­SD, EC02­23A­TN, EC02­23ATX, EC02­23A­UT, EC02­23A­VT, EC02­23A­VA, EC02­23A­WA, EC02­23A­WI.

Notes: The Census Bureau withheld data for some states.

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

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Table A.5.3 General Contractor Baseline Mark­ups 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

Alabama 633 4,087,391 2,224,073 648,488 257,100 1.31

Arizona 647 4,793,249 2,824,778 554,056 238,438 1.33

Arkansas 339 1,764,890 891,847 361,034 121,985 1.28

California 4,179 27,905,058 16,477,915 3,569,406 1,859,722 1.27

Florida 1,900 11,708,047 6,593,086 1,727,883 556,589 1.32

Georgia 1,335 10,267,854 5,885,254 1,879,470 551,798 1.23

Kansas 341 1,947,757 1,026,208 410,497 135,895 1.24

Kentucky 527 2,199,782 1,182,207 383,228 184,386 1.26

Louisiana 513 2,909,041 1,410,150 703,189 247,488 1.23

Maryland 872 6,675,194 3,829,059 766,415 422,357 1.33

Massachusetts 786 8,075,207 5,233,003 1,114,320 430,337 1.19

Michigan 1,237 6,501,437 3,372,219 1,009,192 436,199 1.35

Minnesota 748 6,161,105 3,771,957 1,030,060 428,143 1.18

New Hampshire 153 1,123,795 709,159 168,953 75,195 1.18

New Jersey 1,191 7,134,900 3,823,338 959,859 549,231 1.34

New Mexico 265 1,111,735 585,306 189,063 100,363 1.27

New York 2,147 16,092,933 7,732,253 2,214,809 1,103,423 1.46

North Carolina 1,053 6,123,409 3,212,008 1,143,321 387,044 1.29

North Dakota 164 346,507 151,554 94,777 39,360 1.21

Ohio 1,354 6,956,588 3,743,681 1,226,315 600,282 1.25

Oregon 614 2,998,924 1,762,863 577,844 338,286 1.12

Pennsylvania 1,419 10,114,293 5,579,230 1,612,363 697,391 1.28

Texas 2,890 17,578,086 8,870,626 2,817,907 961,374 1.39

Virginia 851 6,287,509 3,781,530 928,059 402,428 1.23

Washington 929 5,086,570 2,947,223 836,605 449,325 1.20

West Virginia 200 419,620 155,537 110,001 58,024 1.30

Wisconsin 595 4,867,473 2,460,336 1,030,059 479,144 1.23

Average Baseline Markup

Standard Deviation

1.27

0.07

Sources: U.S. Bureau of Census. 2005. 2002 Economic Census Construction Geographic Area Series. Reports EC02­23A­AL,

EC02­23A­AZ, EC02­23A­AR, EC02­23A­CA, EC02­23A­FL, EC02­23A­GA, EC02­23A­KS, EC02­23A­KY, EC02­23A­LA,

EC02­23A­MD, EC02­23A­MA, EC02­23A­MI, EC02­23A­MN, EC02­23A­NH, EC02­23A­NJ, EC02­23A­NM, EC02­23A­NY,

EC02­23A­NC, EC02­23A­ND, EC02­23A­OH, EC02­23A­OR, EC02­23A­PA, EC02­23A­TX, EC02­23A­VA, EC02­23A­WA,

EC02­23A­WV, EC02­23A­WI.

Notes: The Census Bureau withheld data for some states.

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

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