**C- i** 



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

TABLE OF CONTENTS

**C.1 INTRODUCTION ...........................................................................................................C-1**

**C.2 DETAILED WHOLESALER COST DATA ..................................................................C-1**

**C.3 DETAILED MECHANICAL CONTRACTOR DATA..................................................C-2**

**C.4 ESTIMATION OF WHOLESALER AND MECHANICAL CONTRACTOR**

**MARKUP STANDARD DEVIATIONS ........................................................................C-2**

LIST OF TABLES

**Table C.2.1 Disaggregated Costs and Expenses for Wholesalers* ............................................C-1** **Table C.3.1 Mechanical Contractor Expenses and Markups Used to Scale the Incremental**

**Markups* ................................................................................................................C-2** **Table C.4.1 Wholesaler Incremental Markup Standard Deviation*...........................................C-3** **Table C.4.2 Mechanical Contractor Baseline Markups by State, 2002*....................................C-3****C- i**  **i C-**  **1** 

### 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** 

**wi t**  **h 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 69.8% Gross Margin 30.2%
Payroll Expenses 19.5%

**Executive Salaries & Bonuses 3.5%** 

**Sales Executive Salaries & Commissions 0.5%** 

**Outside Sales Salaries & Commissions 2.9%**  **Inside/Counter Sales/Wages 5.5%**  **Warehouse Salaries/Wages 0.9%**  **Delivery Salaries/Wages 0.3%**  **All Other Salaries/Wages & Bonuses 2.6%**  **Payroll Taxes 1.3%**  **Group Insurance 1.4%** 

**Benefit Plans 0.6%**  **Baseline**

Occupancy Expenses 3.4% **Utilities: Heat, Light, Power, Water 0.4%**  **Telephone 0.4%**  **Building Repairs & Maintenance 0.2%**  **Rent or Ownership in Real Estate 2.4%**  **Baseline**

Other Operating Expenses 4.3% **Advertising & Promotion 0.3%**  **Insurance (business liability & casualty) 0.2%**  **Depreciation 0.3%**  **Vehicle Expenses 0.8%**  **Personal Property Taxes/Licenses 0.1%** 

**Bad Debt Losses 0.1%**  **All Other Operating Expenses 2.5%**  **Baseline & Incremental**

Total Operating Expenses 27.2% Operating Profit 3.0% **Baseline & Incremental**

**Other Income 0.7%**  **Interest Expense 0.5%**  **Other Non-operating Expenses 0.0%** 

Profit Before Taxes 3.2%
*** 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.** **C- 2** 



### 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

Ma r kups*

Item Dolla r Value Percentage Scaling Total Cost of Equipment Sales $77,482,735 66.01% **Cost of materials, components, and supplies $37,813,136 32.21%**  **Payroll, construction workers $25,619,932 21.83%**  **Cost of construction work subcontracted out to others $12,462,622 10.62% Cost of selected power, fuels, and lubricants**  **$1,587,045 1.35% Baseline** 

Gross Margin $39,898,412 33.99%
Payroll Expenses $19,648,990 16.74% **Fringe benefits, all employees $9,326,660 7.95%**  **Payroll, other employees $10,322,330 8.79%**  **Baseline**

Occupancy Expenses **Rental cost for machinery, equipment, and buildings +**

**Purchased communication services** $2,926,539 2.49% **Baseline**

Other Operating Expenses $2,969,716 2.53% **Depreciation charges during year $1,666,352 1.42%**  **Cost of repairs to buildings and other structures + Cost of repairs to machinery and equipment**  **$1,303,364 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 Air-Conditioning Contractors: 2002. Report EC02-231-238220, 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

MA RKUP 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 state-level 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. C-**  **3**



### DOE estimated the size of the baseline markup distribution from the standard deviation **of across-state 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 life-cycle 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&-ge o_id=&-_skip=0&-**  **ds_name=EC0242SXSB06&-_lang=en U.S. Census Bureau. 2005. Annual Report for Wholesale Trade: 2002-2003. Report BW(MSBO)/04-A.**  **http://www.census.gov/svsd/www/msbo2003.pdf U.S. Census Bureau. 2005. Table 4. Estimated Coefficients of Variation of Annual Sales, End-of-Year 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 Warm-air heating & AC**  **equipment merchant wholesalers.**

**Cv = coefficient of variation.**



### Table C.4.2 Mechanical Contractor Baseline Markups by State, 2002*

State Num ber of

Firms Value of

Construction ($000) Cost of

Subcontract

Work ($000) Cost of

Materials ($000) Construction

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** **C- 4**  

### Table C.4.2 (contd)

State Num ber of

Firms Value of

Construction ($000) Cost of

Subcontract

Work ($000) Cost of

Materials ($000) Construction

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 EC02-23A-AL, EC02-23A-AK,**
**EC02-23A-AZ, EC02-23A-AR, EC02-23A-CA, EC02-23A-CO, EC02-23A-CT, EC02-23A-DE, EC02-23A-FL, EC02-23A-GA, EC02-23A-HI, EC02-23A-ID, EC02-23A-IL, EC02-23A-IN, EC02-23A-IA, EC02-23A-KS, EC02-23A-KY, EC02-23A-LA, EC02-23A-ME, EC02-23A-MD,** 
**EC02-23A-MA, EC02-23A-MI, EC02-23A-MN, EC02-23A-MS, EC02-23A-MO, EC02-23A-MT, EC02-23A-NE, EC02-23A-NV, EC02-23A**
**NH, EC02-23A-NJ, EC02-23A-NM, EC02-23A-NY, EC02-23A-NC, EC02-23A-ND, EC02-23A-OH, EC02-23A-OK, EC02-23A-OR, EC02- 23A-PA, EC02-23A-RI, EC02-23A-SC, EC02-23A-SD, EC02-23A-TN, EC02-23A-TX, EC02-23A-UT, EC02-23A-VT, EC02-23A-VA, EC02-** 
**23A-WA, EC02-23A-WV, EC02-23A-WI. 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.**