### 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** 

**C­i C­ii** 

### 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.**

**C­1**

### 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.**

**C­2**

### 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**

**Distri ct**  **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**

**C­3**

### 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**  **869,816 753,3**  **88 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 7**  **6,034 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 Hampshir**  **e 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 1,12**  **7,518 684,958**  **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**  **5,92 9,629**  **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**  **773,2 11**  **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,**  **EC02­23A**

**NH, 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.** 

**C­4**