The Price-Recovery Component

 
Actual units
Revenue effect of = Selling price  Selling price  of output
in 2017 in 2016
price-recovery sold in 2017

= ($30,000 – $32,000)  50 = $100,000 U

Cost effect of Units of input

price-recovery for
 Input Input  required to
 price in  price in  produce 2017
variable costs =  2017 2016 
× output in 2016

Cost effect of  Price per Price per 

price-recovery for  unit of  unit of 
 capacity capacity 
fixed costs =  in 2017 in 2016 
×

Actual units of capacity in

2016 because adequate
capacity exists to produce
2017 output in 2016

Architect labor costs ($36 – $35)  30,000

=$30,000 U
Architect (Software implementation) support costs ($3,000 – $2,800)  60 = 12,000 U
Cost effect of price recovery $42,000 U

In summary, the net decrease in operating income as a result of the price-recovery component
equals:
Revenue effect of price-recovery $100,000 U
Cost effect of price-recovery    42,000 U
Change in operating income due to price recovery $142,000 U