### APPENDIX A. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS

TABLE OF CONTENTS

A.1 INTRODUCTION ....................................................A-1 A.2 DETAILED WHOLESALER DATA .....................................A-2 A.3 DETAILED BUILDER DATA ..........................................A-3 A.4 DETAILED CONTRACTOR DATA .....................................A-4 A.5 ESTIMATION OF MARKUP STANDARD DEVIATIONS ...................A-5 LIST OF TABLES

Table A.2.1 Disaggregated Costs and Expenses for Wholesalers

..................A-2 Table A.3.1 Disaggregated Costs and Expenses for Builders

.....................A-3 Table A.4.1 Disaggregated Costs and Expenses for Contractors

...................A-4 

### Table A.5.1 Wholesale Baseline Markups by State .............................A-6 Table A.5.2 Builder Baseline Markupsby State ...............................A-7 Table A.5.3 Contractor Baseline Markups by State .............................A-9

### APPENDIX A. DETAILED DATA FOR EQUIPMENT PRICE MARKUPS

A.1 INTRODUCTION This appendix provides further details on the wholesaler, builder, and contractor markups presented in Chapter 5,Markups for Equipment Price Determination.For each markup type, the Department presents a breakdown of revenues and costs (previously presented in Chapter 5) in an aggregated form. The Department scaled markups with direct "labor" costs and "all costs." Only for those expenses that scale with "all costs," did the Department mark them up when there is an incremental change in equipment costs.

### A.2 DETAILED WHOLESALER DATA

Table A.2.1shows the complete breakdown of costs and expenses for wholesalers, as provided in the1998 WholesalerPROFIT SurveyReport. Table A.2.1 Disaggregated Costs and Expenses for Wholesalers Item Percent of Revenue Scaling Cost of Goods Sold 73.6% DirectInput costs Gross Margin 26.4% Payroll Expenses ExecutiveSalaries & Bonuses 2.7% Labor Inside Sales Salaries/Wages 3.2% Labor Outside Sales Salaries/Commissions 2.2% Labor Warehouse & Delivery Salaries/Wages 2.3% Labor All Other Salaries/Wages & Bonuses 2.1% Labor Payroll Taxes 1.1% Labor GroupInsurance 0.7% Labor Benefit Plans 0.5% Labor Total Payroll Expenses 14.8% Occupancy Expenses Utilities: Heat, Light, Power, Water 0.4% Labor Telephone 0.6% Labor Building Repairs & Maintenance 0.2% Labor Rent or Ownership in Real Estate 2.4% Labor Total Occupancy Expenses 3.6% Other Operating Expenses Advertising and Promotion 0.9% All Costs Insurance 0.4% All Costs Depreciation 0.7% All Costs Bad Debt Losses 0.3% All Costs All Other Operating Expenses 3.2% All Costs Total Other Operating Expenses 5.4% Operating Profit 2.7% All Costs

### A.3 DETAILED BUILDER DATA

Table A.3.1 shows the complete breakdown of costs and expenses for builders, as provided by the U.S. Census Bureau.' Table A.3.1 Disaggregated Costsand Expenses for Builders Item Dollar Value Percent of Scaling Revenue Cost of Equipment Sales Cost of materials, components, and supplies (Direct Materials and $41052528 2764% Equipment Installed) Payroll, construction workers (Direct Labor) , , $7,739,858 .

5.21% Cost of construction work subcontracted out to others (Direct $53 600 996 3635% Subcontract) Cost of selected power, fuels, and lubricants (Direct Other) , , $895,215 .

0.60% Total Cost ofEquipment Sales $103,684,201 80.84% Gross Margin $44,846,923 30.19% Operating Expenses Payroll Expenses Fringe benefits, all employees (Payroll Taxes/Fringe Benefits) $2,623,197 1.77% Labor Payroll, other employees (Officer Salaries, Sales and Estimating 224726 $7 4.86% Labor Salaries, Administration Salaries, Warehouse Salaries) Occupancy Expenses Rental cost for machinery, equipment, and buildings + Purchased , ,

206 $1278 .86% abor communication services (Occupancy Costs) Other Operating Expenses Depreciation charges during year (Depreciation) , , $871,329 0.59% All Costs Cost of repairs to buildings and other structures + Cost of repairs $520732 035% All Costs to machinery and equipment (Vehicle/Maintenance Repairs) Total Operating Expenses , $12,518,190 .

8.43% Net Profit Before Income Taxes $32,327,865 21.77%

### A.4 DETAILED CONTRACTOR DATA

Based on data in the 1995 edition ofFinancialAnalysis for the HVACR Contracting Industry,3Table A.4.1 showsthe completebreakdownof contractor costs and expenses. Table A.4.1 Disaggregated Costs and Expenses for Contractors Item Percentage Scaling Direct Materials 22.70% Equipment Installed 14.22% Direct Labor 19.01% Direct Subcontract 5.55% Direct Other 3.97% Total Costof Sales 65.45% Gross Margin 34.55% Operating Expenses Advertising 1.10% All Costs Bad Debts 0.16% All Costs Depreciation 1.02% All Costs Interest Expenses 0.33% All Costs Liability Insurance 1.12% All Costs Other Insurance 1.36% All Costs Occupancy Costs 1.24% Labor Payroll Taxes/Fringe Benefits 4.02% Labor Selling Expense 1.49% All Costs Officer Salaries 3.80% Labor Sales and Estimating Salaries 2.69% Labor Administration Salaries 3.18% Labor Warehouse Salaries 0.46% Labor Unapplied Labor 1.04% Labor Vehicle/Maintenance Repairs 1.82% All Costs Other Operating Expenses 5.13% All Costs Total Operating Expenses 29.96% Net Operating Profit 4.59% All Costs Other Income 0.79% All Costs Other Expenses -0.49% All Costs Net Profit Before Income Taxes 4.89%

### A.5 ESTIMATION OF MARKUP STANDARDDEVIATIONS

The Department used U.S. Census survey data to estimate furnace wholesaler,' builder, and contractor2 markup distributions

.The survey data included state

-level heating,ventilating, and air-conditioning(HVAC)total value of work, number of firms, cost of goods sold, cost of subcontract work, cost of materials,and construction payroll. The Department used these data to calculate individual state baseline markups. The Department did not calculate markups for some small states because the Census Bureau withheld data for those states. The Department did not calculate the builder markup for Nevada because the data for that state are skewed for reasons that are not clear. Markups may vary across states for several reasons,including differences in firm size. For example,the averageNorthDakota wholesale firm sells $938,000 in goods and services annually and has a 1.85 baseline markup

.The average Oregon wholesale firm sells $7,156,000 and has a 1.23 baseline markup(See TablesA.5.1-A.5.3). 

### The Department estimated the size of the baseline markup distribution from the standard deviation of across-state markups. The wholesale markup standard deviation is 0.11, the builder markup standard deviation is 0.07, and the contractor markup standard deviation is 0.04. These standard deviations suggest that wholesale markups vary more than builder or contractor markups, a result that seems reasonable because there are fewer firms, and thus less competition, at the wholesale level than at the builder or contractor distribution levels. The Department assumed that new construction and replacement market contractor markups have the same relative standard deviation as that developed from the baseline markups for all contractors. The Department defined the term relative standard deviation as the actual standard deviation divided by the baseline markup. The wholesale relative standard deviation is 8.2 percent of its baseline markup, the builder relative standard deviation is 5.0 percent, and the contractor relative standard deviation is 3.1 percent. The Department also assumed that wholesale, builder, and contractor incremental markups have the same relative standard deviation as wholesale, builder, and contractor baseline markups. The Department used this assumption to calculate the standard deviation of wholesale, builder, and contractor incremental markups.

### Table A.5.1 Wholesale Baseline Markups by State

States with Number TotalSales Average Firm Sales Costof Goods Sold Baseline Available Data of Firms ($000) ($000) ($000) Markup Alabama 106 310,246 2,927 230,160 1.35 Arizona 70 281,826 4,026 216,368 1.30 Arkansas 51 109,982 2,157 83,093 1.32 California 325 1,037,453 3,192 688,575 1.51 Colorado 67 206,248 3,078 153,600 1.34 Connecticut 43 161,945 3,766 113,816 1.42 Florida 387 1,037,529 2,681 720,113 1.44 Georgia 179 577,898 3,228 426,361 1.36 Illinois 198 529,087 2,672 379,812 1.39 Indiana 113 391,395 3,464 288,678 1.36 Kentucky 84 227,761 2,711 167,535 1.36 Louisiana 118 272,837 2,312 202,058 1.35 Maryland 92 312,671 3,399 251,925 1.24 Michigan 159 526,458 3,311 402,887 1.31 Minnesota 62 260,501 4,202 175,585 1.48 Missouri 114 265,762 2,331 195,549 1.36 Montana 16 28,924 1,808 20,059 1.44 New Jersey 155 462,301 2,983 329,644 1.40 New York 217 578,251 2,665 419,642 1.38 North Caroline 201 683,453 3,400 465,177 1.47 North Dakota 6 5,625 938 3,038 1.85 Ohio 193 542,633 2,812 391,311 1.39 Oklahoma 80 198,092 2,476 147,117 1.35 Oregon 45 322,038 7,156 262,250 1.23 South Carolina 100 254,564 2,546 170,129 1.50 Tennessee 128 619,069 4,836 459,644 1.35 Texas 459 1,267,425 2,761 911,112 1.39 Virginia 122 407,048 3,336 304,818 1.34 Washington 87 273,753 3,147 183,174 1.49 Wisconsin 85 294,943 3,470 238,470 1.24 Average Markup 1.39 Standard Deviation 0.11

### Table A.5.2 BuilderBaseline Markupsby State

States with Number Value of Average Firm Average FirmCostBaseline Available Data Firms Construction($) Construction Value (S) of Goods Sold ($) Markup Alabama 1,977 1,576,208 797 571 1.40 Alaska 429 359,555 838 577 1.45 Arizona 2,305 4,873,609 2,114 1,579 1.34 Arkansas 1,028 539,958 525 375 1.40 California 12,998 18,137,680 1,395 918 1.52 Colorado 3,026 4,069,277 1,345 970 1.39 Connecticut 1,800 1,427,401 793 563 1.41 Delaware 556 513,984 924 708 1.31 District of Columbia 54 45,717 847 692 1.22

Florida 6,739 12,119,566 1,798 1,298 1.39 Georgia 3,595 4,751,674 1,322 919 1.44 Idaho 1,123 669,998 597 421 1.42 Illinois 5,705 6,129,204 1,074 730 1.47 Indiana 3,769 3,485,518 925 662 1.40 Iowa 1,531 867,331 567 411 1.38 Kansas 1,373 1,389,289 1,012 746 1.36 Kentucky 1,733 1,749,468 1,010 719 1.40 Louisiana 1,287 892,787 694 516 1.34 Maine 956 451,089 472 346 1.37 Maryland 3,675 4,071,741 1,108 805 1.38 Massachusetts 2,840 2,466,962 869 605 1.44 Michigan 6,083 5,113,257 841 592 1.42 Minnesota 2,640 2,956,041 1,120 818 1.37 Mississippi 896 596,314 666 499 1.33 Missouri 3,204 2,542,704 794 569 1.40 Montana 959 378,113 394 290 1.36 Nebraska 919 785,134 854 575 1.48 Nevada 976 2,829,068 2,899 1,994 1.45 New Hampshire 831 638,611 768 547 1.41 New Jersey 4,615 4,393,306 952 643 1.48 New Mexico 1,343 1,071,559 798 618 1.29 New York 6,842 4,573,915 669 475 1.41

A-7States with Number Value of Average Firm Average FirmCostBaseline

Available Data Firms Construction($) Construction Value($) of Goods Sold($) Markup North Carolina 5,455 5,981,232 1,096 774 1.42 North Dakota 285 111,833 392 293 1.34 Ohio 5,386 5,398,843 1,002 698 1.44 Oklahoma 878 756,881 862 608 1.42 Oregon 3,150 2,492,183 791 560 1.41 Pennsylvania 6,317 5,182,779 820 581 1.41 Rhode Island 610 332,595 545 321 1.70 South Carolina 2,436 2,300,149 944 693 1.36 South Dakota 438 250,323 572 431 1.33
Tennessee 2,588 2,686,121 1,038 754 1.38
Texas 5,142 10,069,998 1,958 1,398 1.40 Utah 1,662 1,360,194 818 566 1.45 Vermont 641 325,984 509 378 1.35 Virginia 4,881 5,129,615 1,051 763 1.38 Washington 5,660 4,149,635 733 514 1.43 West Virginia 1,504 440,210 293 219 1.34 Wisconsin 2,959 2,404,741 813 617 1.32 Wyoming 541 339,930 628 467 1.35 Average Markup 1.40 Standard Deviation 0.069

### Table A.5.3 ContractorBaselineMarkups by State

State Number of

Firms Total Value

of Work ($000) Average

Firm Size ($000) Cost of

Subcontract Work ($000) Cost of

Materials ($000) Construction

Payroll ($000) Baseline

Markup Alabama 1,413 1,227,115 868 71,884 469,589 261,627 1.53 Alaska 187 191,222 1,023 26,999 62,114 39,063 1.49 Arizona 1,344 1,558,535 1,160 105,390 670,620 314,727 1.43 Arkansas 980 587,503 599 38,859 233,542 123,406 1.48 California 6,776 8,179,446 1,207 752,768 3,074,373 1,829,630 1.45 Colorado 1,654 1,693,660 1,024 163,179 681,129 360,281 1.41 Connecticut 1,254 1,004,514 801 92,352 363,915 211,448 1.50 Delaware 288 409,763 1,423 33,040 137,526 97,407 1.53 Florida 4,803 4,270,074 889 387,328 1,743,206 808,674 1.45 Georgia 2,589 2,707,372 1,046 226,200 1,068,051 509,764 1.50 Hawaii 243 262,209 1,079 31,120 84,395 53,728 1.55 Idaho 546 534,485 979 71,998 203,012 99,646 1.43 Illinois 3,756 4,666,573 1,242 421,160 1,612,309 1,111,017 1.48 Indiana 1,973 2,415,608 1,224 248,396 880,509 551,694 1.44 Iowa 938 941,814 1,004 90,092 333,338 201,583 1.51 Kansas 1,065 991,048 931 88,986 413,221 199,495 1.41 Kentucky 1,178 1,069,652 908 71,707 420,424 233,198 1.47 Louisiana 1,200 1,032,992 861 123,727 390,003 189,221 1.47 Maine 552 271,742 492 22,337 109,332 54,823 1.46 Maryland 2,037 2,706,074 1,328 431,681 996,255 518,575 1.39 Massachusetts 2,172 2,197,054 1,012 354,209 788,930 404,929 1.42 Michigan 3,187 3,345,829 1,050 386,971 1,168,701 704,768 1.48 Minnesota 1,416 1,744,406 1,232 185,449 645,039 376,324 1.45 Mississippi 746 561,720 753 37,622 246,454 104,011 1.45 Missouri 1,824 1,850,266 1,014 223,236 630,723 411,300 1.46 Montana 412 248,138 602 20,278 110,880 51,205 1.36 Nebraska 662 585,515 884 54,614 228,098 126,247 1.43 Nevada 515 881,622 1,712 70,133 355,908 194,926 1.42 New Hampshire 462 362,465 785 42,964 140,289 68,677 1.44 New Jersey 3,320 2,809,386 846 348,499 995,667 578,431 1.46 New Mexico 600 393,575 656 35,545 155,469 93,895 1.38 New York 5,234 5,292,794 1,011 665,391 1,887,074 1,012,489 1.48 North Carolina 3,057 2,989,371 978 238,119 1,184,341 608,150 1.47 North Dakota 248 225,388 909 20,210 84,540 52,237 1.44 Ohio 3,329 3,847,492 1,156 484,047 1,349,187 841,751 1.44 Oklahoma 1,156 737,958 638 59,705 291,994 134,307 1.52 Oregon 1,079 1,349,767 1,251 148,845 498,268 332,455 1.38 Pennsylvania 3,546 4,001,213 1,128 431,042 1,485,212 830,817 1.46 Rhode Island 356 240,887 677 36,581 91,233 43,832 1.40 South Carolina 1,351 1,189,389 880 109,630 484,566 262,120 1.39 South Dakota 311 171,663 552 15,506 71,723 34,206 1.41

A-9State Total Value Average Cost of Number of of Work Firm Size Subcontract Work Firms ($000) ($000) ($000) Costof Construction Materials Payroll Baseline 

### ($000) ($000) Markup Tennessee 1,612 1,940,866 1,204 187,255 815,782 380,309 Texas 5,516 5,988,883 1,086 571,356 2,482,127 1,147,065 Utah 835 899,015 1,077 114,587 313,840 173,567 Vermont 245 149,893 612 11,891 55,013 33,780 Virginia 2,39] 2,109,902 882 143,031 863,964 475,238 Washington 1,746 1,894,359 1,085 134,056 693,627 417,457 West Virginia 496 307,942 621 15,757 138,747 66,039 Wisconsin 1,981 2,108,422 1,064 168,459 740,090 512,820 Wyoming 264 130,175 493 12,688 52,717 26,025 1.40 1.43 1.49 1.49 1.42 1.52 1.40 1.48 1.42 Average Markup 1.45 Standard Deviation 0.04

A-10

### REFERENCES

1. Air-conditioning & Refrigeration Wholesalers Association (ARW).1998 Wholesaler PROFIT Survey Report, Based on 1997 Wholesaler Operations.1998. Boca Raton, FL. http://www.arw.org. 2. U.S. Department of Commerce - Economics and Statistics Administration - Bureau of the Census.Single Family Housing Construction, 1997 Economic Census.November, 1999. U.S. Department of Commerce. Report No. EC97C-2332A. 3. Air Conditioning Contractors of America(ACCA).FinancialAnalysis for the HVACR ContractingIndustry.1995. Washington, DC.