An overview of the recently adopted ASHRAE Standard 124,Methods of Testing for Rating Combination Space-Heating/Water-Heating Appliances, is presented, with emphasis on the derivation of the algorithms used in determining a combined annual efficiency. The individual effects of several performance parameters on the combined annual efficiency and annual cost of operation of a water heater used for space heating/water heating are presented. These parameters include the recovery efficiency, standby loss, and space-heating efficiency. The effects of water use, design heating requirements, and regional effects on the length of the space-heating season are also addressed. An overview of the laboratory testing procedures required to obtain the combined annual efficiency is also presented.KEYWORDS: space heating, water heating, combination boilers, efficiency, algorithms, standards, testing, appliances, performance, cost in use, water heaters, heat load