E-3.i

APPENDIX E-3. MANUFACTURING COST DISTRIBUTIONS

TABLE OF CONTENTS

E-3.1 BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.1

E-3.2 MANUFACTURING COST DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.2

E-3.2.1 Existing Baseline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.2

E-3.2.2 2003 Baseline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.4

E-3.2.3 Heat Traps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.4

E-3.2.4 Plastic Tank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.4

E-3.2.5 Insulated Tank Bottom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.5

E-3.2.6 Side Arm Heater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.5

E-3.2.7 Electronic Ignition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.5

E-3.2.8 Improved Flue Baffle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.5

E-3.3 CUMULATIVE DISTRIBUTIONS TO FREQUENCY DISTRIBUTIONS . . . . . . E-3.5

TABLE

Table E-3.1 Adjusted Manufacturer Cost Distributions . . . . . . . . . . . . . . . . . . . . . . . . . E-3.4

FIGURES

Figure E-3.1 Manufacturer Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.1

Figure E-3.2 Manufacturer Cost Distribution for Baseline Electric Water Heaters . . . . E-3.3

Figure E-3.3 Adjusted Manufacturer Cost Distribution for Baseline Electric 

Water Heaters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.3

Figure E-3.4 Difference Between Cumulative Cost Curves of Heat Traps and Baseline

Gas-Fired Water Heaters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.5

Figure E-3.5 Incremental Manufacturer Costs of Heat Traps on Gas-Fired 

Water Heaters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-3.6
E-3.1

APPENDIX E-3. MANUFACTURING COST DISTRIBUTIONS

E-3.1 BACKGROUND

The LCC analysis uses individual design options grouped together in combinations according

to the results of the Engineering Analysis. This analytic procedure requires incremental

manufacturing costs of individual design options.

The distributions of the manufacturing costs for most design options were provided by the

Gas Appliance Manufacturers Association (GAMA) as cumulative curves of total cost.1 GAMA

data only apply to 50-gal electric and 40-gal gas-fired water heaters. These data are used as the basis

for the development of the incremental manufacturing costs for the other standard sizes and for the

analyzed design options.

 The data summarize 10,000 samples randomly drawn from ranges of total manufacturing

cost provided by four major water heater manufacturers. Figure E-3.1 shows manufacturing costs

for the existing baseline gas-fired water heater and the same water heater with heat traps.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$100 $110 $120 $130 $140 $150 $160 $170 $180

Total Manufacturer Costs

cumulative percent

baseline

heat traps

Figure E-3.1 Manufacturer Costs
E-3.2

E-3.2 MANUFACTURING COST DISTRIBUTIONS

The distributions of manufacturing costs for the baseline models are based on data from

GAMA with modifications as described below. The incremental cost of increased insulation

thickness used in the LCC Analysis is provided by the Engineering Analysis. These costs vary by

tank size. The incremental costs of thicker insulation are not applied as distributions. Only single

values are used. Incremental manufacturing costs for design options not provided by GAMA are

distributions provided by an LBNL consultant.2

E-3.2.1 Existing Baseline

In order to address concerns about manufacturers’ costs, DOE adjusted the range of the

manufacturer’s cost distribution. We did this to bring manufacturers’ costs in line with known

appliance manufacturing costs, derived from SEC reports and the A.O. Smith 10K reports. This

change also ensures consistency within the data. Since the overall retail prices remain constant, this

change eliminates the occurrences of unreasonably low markups on the baseline gas and electric

water heaters. 

 The U.S. Census Bureau's 1997 Current Industrial Report, Major Household Appliances3

reports the total value of electric and gas-fired water heaters as $1,253 million for 8.7 million units

sold. Thus, the average price per unit would be $144. Because these data include premium models

and manufacturers’ markups as well as warranty costs, freight, profits, and commissions, the

resulting price will be higher than the baseline model factory cost; thus it represents an upper limit

of the factory cost. 

The upper limit of the range of manufacturer cost data provided by GAMA ( $164.49 for

electric water heaters and $169.39 for gas-fired water heaters) (see Appendix C-2) is significantly

above the factory price calculated from the Current Industrial Report. We assumed one of the

manufacturers had supplied cost data that was not in agreement with what we were expecting. To

correct this, we developed four triangular distributions to the cost data distribution provided by

GAMA. The cost data from GAMA was provided in the form of a cumulative probability

distribution, reported by deciles. This data was transformed into a frequency distribution. The fitted

triangular distributions superimposed on to the frequency distribution chart for the baseline electric

water heater are shown in Figure E-3.2. Similar fitting was done for gas-fired water heaters as well.

We also applied this correction technique to the manufacturer costs for baseline water heaters with

heat traps and increased insulation. 

After the parameters for the distribution cost data from the four manufacturers was

determined, we adjusted the costs reported by the most expensive manufacturer downward, so the

that the average cost of that manufacturer matched the average cost of the other three manufacturers.

(See Figure E-3.3) This operation changed the average manufacturer cost for the existing baseline

model electric water heater from $124.00 to $114.45. Similar calculations were done for the existing

baseline model gas-fired water heater as well as for heat traps and increased insulation. The results

are shown in Table E-3.1.
E-3.3

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

80 85 90 95 10

0

10

5

11

0

11

5

12

0

12

5

13

0

13

5

14

0

14

5

15

0

15

5

16

0

16

5

17

0

17

5

18

0

18

5

19

0

1998$

probability per $

Mfr Cost

predicted Mfr A

predicted Mfr B

predicted Mfr C

predicted Mfr D

Figure E-3.2 Manufacturer Cost Distribution for Baseline Electric Water Heaters 

$114.45 $124.00

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 165 170 175 180 185 190

1998$

probability per $

Ave Mfr Cost

Adjusted Ave Mfr Cost

predicted Mfr A

predicted Mfr B

predicted Mfr C

adjusted Mfr D

Figure E-3.3 Adjusted Manufacturer Cost Distribution for Baseline Electric Water

Heaters
E-3.4

Table E-3.1 Adjusted Manufacturer Cost Distributions

Unadjusted Adjusted

Minimum Average Maximum Minimum Average Maximum

Electric

Existing Baseline 88.49 124.00 164.49 88.49 114.45 133.31

Heat Traps 91.57 127.07 166.66 91.57 117.95 135.01

Increased Insulation 105.63 143.63 187.41 105.63 136.14 172.41

Gas-Fired

Existing Baseline 107.25 135.75 169.39 107.25 129.53 147.44

Heat Traps 110.12 138.08 171.93 110.12 131.88 148.20

Increased Insulation 113.87 150.45 184.16 113.87 144.74 167.47

No effect was observed on the lower end of the distribution of manufacturer cost data. 

After the data adjustment was made, it was re-formatted into the same form as was used

before, a cumulative distribution reported in deciles. Subsequent analyses were carried out in the

same manner as previously.

The adjusted manufacturer cost data is used directly for the typical existing water heater size

(50-gallon rated volume for electric water heaters and 40-gallon rated volume for gas-fired water

heaters). The distributions of the manufacturing costs for smaller sizes are calculated by subtracting

the cost of extra foam and extra sheet metal from the cumulative manufacturing cost data for the

typical size water heaters. The distributions of the manufacturing costs for the larger sizes are

calculated by adding the cost of extra foam and extra sheet metal to the typical size.

E-3.2.2 2003 Baseline

The distribution of the manufacturing cost for the 2003 baseline water heater is calculated

by adding the incremental cost of the HFC-245fa foam to the cost ranges already calculated for the

existing baseline models of the corresponding size.

E-3.2.3 Heat Traps

The frequency distribution of the incremental manufacturing costs of heat traps is calculated

as the cost difference between “GAMA Level 2" and “GAMA Level 1" data as explained later in this

appendix. The same incremental cost distribution is used for all sizes of water heaters. Note that the

cost data reported for heat traps are different for electric and gas-fired water heaters.

E-3.2.4 Plastic Tank

GAMA provided no data for this design option. The incremental cost distribution was

provided by the consultant. The cost range varies -5% to +10%. The same incremental cost

distribution is used for the all sizes of water heaters.
E-3.5

E-3.2.5 Insulated Tank Bottom

We used incremental cost distribution provided by consultants. The same incremental cost

distribution is used for the all sizes of water heaters.

E-3.2.6 Side Arm Heater

GAMA provided no data for this design option. The incremental cost distribution was

provided by the LBNL consultant. The cost range varies -10% to +20%. The same incremental cost

distribution is used for all water heater sizes.

E-3.2.7 Electronic Ignition

The frequency distribution of the incremental manufacturing costs is calculated as a cost

difference between “GAMA Level 6" and “GAMA Level 1" data as explained below. The same

incremental cost distribution is used for the other size water heaters.

E-3.2.8 Improved Flue Baffle

The frequency distribution of the incremental manufacturing costs is calculated as a cost

difference between “GAMA Level 5" and “GAMA Level 1" data. The same incremental cost

distribution is used for the other size water heaters.

E-3.3 CUMULATIVE DISTRIBUTIONS TO FREQUENCY DISTRIBUTIONS

It was assumed that the cumulative manufacturing cost distributions reported for the existing

baseline water heater and the water heater with other additional design options were highly

correlated. This assumption allows the difference between these two cumulative curves to be

determined.

 A plot of the difference between the cumulative cost curves of heat traps and baseline gasfired water heaters shows each segment separately as in Figure E-3.4. What can be seen in this plot

is that some of the segments spread across a much larger range of costs, so that the sample density,

in samples per dollar, is much lower. Also, many of the segments overlap in cost. 
E-3.6

$2.11

$2.17

$1.86

$2.09

$2.91

$2.67

$2.53

$2.87

$2.19

$2.29

$2.45

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$1.75 $2.00 $2.25 $2.50 $2.75 $3.00

Difference of Manufacturing Costs

percent

Figure E-3.4 Difference Between Cumulative Cost Curves of Heat Traps and Baseline

 Gas-Fired Water Heaters 

 A constant sample density throughout each segment is assumed. With this assumption, it

is possible to assign a fraction of the samples in each segment to any cost range the segment spans.

The segments are then divided at the points where the cost ranges overlap and the fractions of

samples are assigned to the new smaller cost ranges.

The fractions of the original segments are combined where they span identical cost ranges

to give the relative frequency of samples within each cost range. This data can be plotted as a

histogram of the frequency of samples by incremental cost for that design option. This is done for

heat traps on gas-fired water heaters in Figure E-3.5.
E-3.7

$2.91 $1.86

0

50

100

150

200

250

300

350

400

$1.75 $2.00 $2.25 $2.50 $2.75 $3.00

Incremental Manufacturer Costs

Samples per $0.01

Figure E-3.5 Incremental Manufacturer Costs of Heat Traps on Gas-Fired Water Heaters
E-3.8

REFERENCES

1. Gas Appliance Manufacturers Association, GAMA Cost Data, 1998. Received by LBNL

on October 20, 1998.

2. Minniear, M., Residential Water Heaters: Initial Estimates of Manufacturing Costs and

Energy Consumption, November 12, 1997, Minniear Corporation. Panama City, FL. 

Report No. Task 1 of LBNL Subcontract No. 6466797. 

3. U.S. Department of Commerce-Bureau of the Census, Current Industrial Reports for

Major Household Appliances (MA36F),1997. Published 25 August, 1998, revised 23

September, 1998. <http://www.census.gov/industry/ma36f97.txt>