The Price-Recovery Component

 
Actual units
Revenue effect of =
Selling price  Selling price  of output
price-recovery
in 2017 in 2016 sold in 2017
= ($33 $32)  233,000 = $233,000 F

Cost effect of  Input Input  Units of input required

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

 Price per Price per  Actual units of capacity in

Cost effect of  unit of  unit of  2016 because adequate
price-recovery for  capacity capacity  capacity exists to produce
 in 2017 in 2016 
fixed costs =  × 2017 output in 2016

Direct materials costs ($15  $17)  256,300 = $512,600 F

Administrative costs ($380  $370)  4,700 = 47,000 U
Total cost effect of price-recovery component $465,600 F

In summary, the net increase in operating income as a result of the price-recovery component
equals:

Revenue effect of price-recovery $233,000 F

Cost effect of price-recovery 465,600 F
Change in operating income due to price-recovery $698,600 F