APPENDIX C. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS

TABLE OF CONTENTS

C.1 INTRODUCTION...........................................................................................................C­1

C.2 DETAILED WHOLESALER COST DATA..................................................................C­1

C.3 DETAILED MECHANICAL CONTRACTOR DATA .................................................C­2

C.4 ESTIMATION OF WHOLESALER AND MECHANICAL CONTRACTOR

MARKUP STANDARD DEVIATIONS........................................................................ C­2

LIST OF TABLES

Table C.2.1 Disaggregated Costs and Expenses for Wholesalers*............................................C­1

Table C.3.1 Mechanical Contractor Expenses and Markups Used to Scale the Incremental

Markups*................................................................................................................C­2

Table C.4.1 Wholesaler Incremental Markup Standard Deviation* ..........................................C­3

Table C.4.2 Mechanical Contractor Baseline Markups by State, 2002* ...................................C­3

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 EE-2006-STD-0126 COMMENT 11.2
APPENDIX C. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS

C.1 INTRODUCTION

This appendix provides further details on information presented in chapter 6, Markups for

Equipment Price Determination.

C.2 DETAILED WHOLESALER COST DATA

Table 6.3.1 of chapter 6, section 6.3, shows wholesaler revenues and costs in aggregated

form. These data are based on the 2005 Profit Report (2004 Data) of the Heating

Airconditioning & Refrigeration Distributors International (HARDI). Table C.2.1 provides the

complete breakdown of costs and expenses as provided in the 2005 Profit Report (2004 Data).

The column labeled “Scaling” in Table C.2.1 indicates which expenses were assumed to scale

with only the baseline markup and which were assumed to scale 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.

Table C.2.1 Disaggregated Costs and Expenses for Wholesalers*

Item Percent of Revenue Scaling

Cost of Goods Sold

Gross Margin

69.8%

30.2%

Payroll Expenses

Executive Salaries & Bonuses

Sales Executive Salaries & Commissions

Outside Sales Salaries & Commissions

Inside/Counter Sales/Wages

Warehouse Salaries/Wages

Delivery Salaries/Wages

All Other Salaries/Wages & Bonuses

Payroll Taxes

Group Insurance

Benefit Plans

19.5%

3.5%

0.5%

2.9%

5.5%

0.9%

0.3%

2.6%

1.3%

1.4%

0.6%

Baseline

Occupancy Expenses

Utilities: Heat, Light, Power, Water

Telephone

Building Repairs & Maintenance

Rent or Ownership in Real Estate

3.4%

0.4%

0.4%

0.2%

2.4%

Baseline

Other Operating Expenses

Advertising & Promotion

Insurance (business liability & casualty)

Depreciation

Vehicle Expenses

Personal Property Taxes/Licenses

Bad Debt Losses

All Other Operating Expenses

4.3%

0.3%

0.2%

0.3%

0.8%

0.1%

0.1%

2.5%

Baseline & Incremental

Total Operating Expenses 27.2%

Operating Profit

Other Income

Interest Expense

Other Non­operating Expenses

Profit Before Taxes

3.0%

0.7%

0.5%

0.0%

3.2%

Baseline & Incremental

* 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 6.3.1.

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C.3 DETAILED MECHANICAL CONTRACTOR DATA

Table 6.4.1 of chapter 6, section 6.4, shows mechanical contractor revenues and costs in

aggregated form. This table is based on U.S. Census Bureau data. Table C.3.1 shows the

complete breakdown of costs and expenses provided by the U.S. Census Bureau. The column

labeled “Scaling” in Table C.3.1 indicates which expenses were assumed to scale with only the

baseline markup and which were assumed to scale 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.

Table C.3.1 Mechanical Contractor Expenses and Markups Used to Scale the Incremental

Markups*

Item Dollar Value Percentage Scaling

Total Cost of Equipment Sales

Cost of materials, components, and supplies

Payroll, construction workers

Cost of construction work subcontracted out to others

Cost of selected power, fuels, and lubricants

$77,482,735

$37,813,136

$25,619,932

$12,462,622

$1,587,045

66.01%

32.21%

21.83%

10.62%

1.35%

Baseline

Gross Margin $39,898,412 33.99%

Payroll Expenses

Fringe benefits, all employees

Payroll, other employees

$19,648,990

$9,326,660

$10,322,330

16.74%

7.95%

8.79%

Baseline

Occupancy Expenses

Rental cost for machinery, equipment, and buildings +

Purchased communication services

$2,926,539 2.49% Baseline

Other Operating Expenses

Depreciation charges during year

Cost of repairs to buildings and other structures + Cost

of repairs to machinery and equipment

$2,969,716

$1,666,352

$1,303,364

2.53%

1.42%

1.11%

Baseline &

Incremental

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: Mechanical contractor costs and expenses are first presented as total dollar values and then converted to percentage values. This is in

contrast to the per dollar of sales revenue values shown in Table 6.4.1.

C.4 ESTIMATION OF WHOLESALER AND MECHANICAL CONTRACTOR

MARKUP STANDARD DEVIATIONS

The U.S Department of Energy (DOE) used U.S. Census survey data to estimate

commercial refrigeration equipment wholesaler and mechanical contractor markup distributions.

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

mechanical contractors, the survey data includes state­level plumbing, heating, and air

conditioning data for 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 C.4.1

and Table C.4.2.

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 EE-2006-STD-0126 COMMENT 11.2
DOE estimated the size of the baseline markup distribution from the standard deviation

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

contractor markup standard deviation is 0.06. DOE defined the relative standard deviation as the

standard deviation as a percent of the baseline markup. The relative standard deviations for the

wholesaler and mechanical contractor markups are 4.2 and 4.0 percent of their respective

baseline markups.

DOE also assumed that wholesaler and mechanical contractor incremental markups have

the same relative standard deviation as wholesaler and mechanical contractor baseline markups.

This assumption was used to calculate the standard deviation of wholesaler and mechanical

contractor incremental markups. This analysis was done to understand the level of variability in

the wholesaler and mechanical contractor markups. In the case of the contractor markups, the

variation in contractor markup by state is captured explicitly in the subsequent life­cycle cost

(LCC) analysis. Random variation in wholesaler markups however has not been introduced into

the LCC analysis.

Table C.4.1 Wholesaler Incremental Markup Standard Deviation*

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

5,180 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

* 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. Census Bureau. 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 Hardware, plumbing & heating equipment & supply merchant wholesalers and 42373 applies to Warm­air heating & AC

equipment merchant wholesalers.

Cv = coefficient of variation.

Table C.4.2 Mechanical Contractor Baseline Markups by State, 2002*

Cost of

Value of Subcontract Cost of Construction

State

Number of

Firms

Construction

($000)

Work

($000)

Materials

($000)

Payroll

($000)

Baseline

Markup

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

Alaska 398 687,319 80,919 196,594 149,576 1.61

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

District of Columbia 1.49

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

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 EE-2006-STD-0126 COMMENT 11.2
Table C.4.2 (contd)

Cost of

Value of Subcontract Cost of Construction

State

Number of

Firms

Construction

($000)

Work

($000)

Materials

($000)

Payroll

($000)

Baseline

Markup

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

West Virginia 786 720,324 39,465 200,111 215,363 1.58

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

Wyoming 1.49

Average Baseline Markup 1.51

Standard Deviation 0.06 * Sources: U.S. Census Bureau. 2005. 2002 Economic Census Construction Geographic Area Series. Reports EC02­23A­AL, EC02­23A­AK,

EC02­23A­AZ, EC02­23A­AR, EC02­23A­CA, EC02­23A­CO, EC02­23A­CT, EC02­23A­DE, EC02­23A­FL, EC02­23A­GA, EC02­23A­HI,

EC02­23A­ID, EC02­23A­IL, EC02­23A­IN, EC02­23A­IA, EC02­23A­KS, EC02­23A­KY, EC02­23A­LA, EC02­23A­ME, EC02­23A­MD,

EC02­23A­MA, EC02­23A­MI, EC02­23A­MN, EC02­23A­MS, EC02­23A­MO, EC02­23A­MT, EC02­23A­NE, EC02­23A­NV, EC02­23ANH, EC02­23A­NJ, EC02­23A­NM, EC02­23A­NY, EC02­23A­NC, EC02­23A­ND, EC02­23A­OH, EC02­23A­OK, EC02­23A­OR, EC02­

23A­PA, EC02­23A­RI, EC02­23A­SC, EC02­23A­SD, EC02­23A­TN, EC02­23A­TX, EC02­23A­UT, EC02­23A­VT, EC02­23A­VA, EC02­

23A­WA, EC02­23A­WV, EC02­23A­WI.

Notes: The U.S. Census Bureau withheld data at the Plumbing, Heating, and Air Conditioning Contractor level (23822) for Alaska, District of

Columbia, West Virginia, and Wyoming. Data for Building Equipment Contractors (2382) were used for Alaska and West Virginia; the average

markup value for Maryland and Virginia was used for the District of Columbia, and the average markup value for Colorado and Utah was used

for Wyoming.

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

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