·. ;.



## . Mark-ups for Clothes Washers**Rul~making** 

## Analysis Clothes Washer Workshop March 11, 1998 U.S.**Departm~nt** of Energy Office of Energy Efficiency and Renewable Energy 1000 lndepenaence Avenue, SW Washington-, DC 20585

### ... -, Clothes Washer Workshop: Mark-up Approach 

## Department of Energy proposes using a 2-step mark-up approach to estimate the retail price of clothes washers.

Manufacturing**...-------1~** Cost Manufacturer Price

Consumer Price Retail Price



### ._. Consumer Price is obtained**~y** 

### _adding a sales tax to the retail price ·

2Clothes Washer Workshop: Retail Mark-up . . 

## Historical average retail and manufacturer prices from various data sources were used to estimate retail mark-·ups. · · 

# :.-/J Sources of average retail prices

·- Consumer Expenditure· surveys (1986-1994)

- Dealerscope..Merchandising's Annual Statistical Surveys (1986-1995) ELCAP sales data (1994-1997) 

# '.-/J Sources of average manufacturer prices

- Current Industrial Reports (1986-1996) AHAM Fact Book (1986-1996)

3;. Clothes Washer Workshop: Retail and Manufacturer Prices 

## Retail and Manufacturer prices for clothes washers are illustrated in .this slide.Retail Prices Manufacturer Prices

$450 $450 $400 $400 $350 $350 $300 $300

-+-Consumer Expenditure Surveys

--- Dealerscope Merchandizing -&-ELCAP -+-Current Industrial Reports -e-AHAM Fact Book

4Clothes Washer Workshop: Retail Mark-up

. . . 

## Average retail mark-ups decreased in the 1986 to 1992 period, but have not changed much since then. · Year
1986 1987" 1988 1989 1990 1991 1992 1993 1994 1995 1996. Retail · Retail Retail Retail Mark-up Mark-up Mark-up, Mark-up (Dealerscope) (Dealerscope) (CES) (CES) (AHAM) (CIR) (AHAM) (CIR) ,.

1.65 1.67 1.64 1.46 1.43 1.44. ·1.31 1.31.**1~32** 1.30 1.61 1.65 1.68 1.46 1.47 1.50 1.38 1.35 1.41 1.44 1.55 1.56 1.55• 1.51 1.47 1.47 1.42 . 1.36 1.38 1.51 1.54 1.59 1.52 1.52 1.53 1.49 1.40. 1.48 1.31 · 1.23 1.36. 1.41 1.36 1.41



### ... The Department proposes using a retail ·mark-up of 1.40 based on retail mark-ups estimated from various ·data sources. ·
5' ., Clothes Washer Workshop: Retail Price and Sales Tax· 

### An average retail price of $400.25 was estimated from the available information.



### .•-:-J

IV.J This represents the average price of a high production vol**um~** 

### vertical· axis washer with a high market share.. ·

## t~ In the absence of specific price information for a baseline clothes washer represented by 0.817 MEF, the Department proposes to use $400.25 as the baseline retail price. Sales tax @.

## 5.2% is added to baseline retail price to arrive at the ·baseline consumer price. · ·

## I~ · A baseline manufacturer price of $285.90 is obtained using a baseline

retail price of $400.25 and a retail mark-up of 1.40. ··

6. Clothes Washer Workshop: Manufacturer Cost and.

### Ma~k-up 

## A c.lothes washerindustry cost structure was obtained from 

# atopdown analysis of the appliance industry and used to estimate. the full production cost of a baseline clothes washer. ·.

SG&A 18.3% R&D 1.8% Overhead 11.7°/o Labor 10.2% Income. from Operations 6.0o/o

· Material 52.0% Material.Cc;>st 148.7 Labor Cost 29.3 Overhead Cost 33.5 

### :Fufrf>fodudion 

## bast.... : .J'tt2ffs ·•.· ,':.
:.. .. . ..**~** •, .· . " . .·.**~.**



## ·.·

## Av~r~ge**M~htit~dtut~~-'.~~~k~ti~· ~**  '. _coyer full ·productio.n cost) ·:**'·~'** .**~** ' . : . ' ' : . ·. ' '.' : ; . . : . .**~~** 

# . ' :" =1.35 ', '.

## ~ (

## =-.;~~~:~g:::_)**~i**

. . ::·, \:,,.':;c;.·; •:;>:{;;

## .;.~:·'.**:.~~'.-~ :.~**  :;.,;« ; >

## ;.;,;~;·c::<~**'.~,:•·:?·~•.:•:;;~,~;"Ji**
7.; .; .._, . Clothes Washer Workshop: Baseline Costs and Mark-ups Summary 

### Representative prices and mark-ups for a baseline vertical axis clothes washer being sold in the U.S. marketplace.were _constructed from ayailable.sources of price and industry data.

Total Mark-up 1.35 x 1.40 x 1.052 

## =1.990

· Manufacturing Manufacturer Cost 1---...&---11M Price**t------~** $211.50 $285.90 Retail Price $400.25 Consumer Price $421.10

8{.. . . .. ·Clothes**Washe~** Workshop: ANOPR Analysis 

## The Department proposes using a triangular distribution to characterize uncertainty in manufacturer mark-ups. ·. 

# 1-.t A mark-_up of 1.35 obtained using industry cost structure will serve as

. the upper bound. · l.t A ma'rk-up of 1.00, representing pass-through of incremental full ... production costs (which includes depreciation of new capital :expenditures) will serve as the lower bound. 

# rVJ A mark-up of 1.18 which is the average of the upper and lower bound will be used as the most likely mark-up to characterize the triangular distribution.

9

### Clothes Washer Workshop: Manufacturer Cost and Mark-up
Full Cost of PrOduct
Full Production Cost 1 r°'.il)ffei:t' ;;:i Labor ':«l'tf;;;Sf1\' "'. .-.: u1r8Ct''**Mater~** Overhead**~""'.''?i<~:?r~r.~~~·~~~** - : IndirectLabot .· ·

- Indirect Material

- Maintenance

- Depreciation

- Taxes

_ Insurance related

·toassets Non-Production Cost 

### oiHerit 

### &

AdmIn.

### -~~'l '-"RilS if ... .. . \.IOSC& . . -'.,.·'eostSo·f ·,'.';;• ..**:.:.';r~.!**

..;l -

### ~.·~;~o·.I~@. '*.$)

.......

### r.J;i'K'l\f~.·".··...**~** lservice & .· >; 

## Iassociated ) 1

.... Advettislng i- •POS promotion •**~Safes** person**~** comp; +travel

.... · Logistics

· - Warehousing

- Delivery

- Record keeping t staff units . ·. 'i , with efforts·., 

### i borrC)WlnQi

. . · · . i ::

### to find new ;1 :funds ·.·J

- i. General 

### »: 

### Ior Improved!

1 ,· corporate · i ! products oi' 1 '

. ·' I : costs i 1 production 1 ·. · · I I· . I 

### 1- comp. etc. j \'processes ·!

1 Tax Reform Act of 1986, essentially, requires companies to measure cost of goods sold as the full production cost of the goods sold.

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