·. ; . 

. 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 · 

2 
Clothes 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 

4 
Clothes 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 a topdown 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 

: Fufr f>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.~~~·~~~ 

- : Indirect Labot . · · 

- Indirect Material 

- Maintenance 

- Depreciation 

- Taxes 

_ Insurance related 

·to assets 

Non-Production Cost 

oiHerit & 

Adm In. 

-~~'l - ~.·~;~o·.I~@. '-"RilS if '*.$) ... ....... .. . r.J;i'K'l\f~.·".··... \.IOSC& . . -'.,.·'eostSo·f ~ ·,'.' ;;• .. :.:.';r~.! .. ;l l service & . · >; I associated ) 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 »: I or 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. 

10