2.

The Growth Component

 Actual units Actual units of  Selling

Revenue effect  of output sold  output sold   price
 in 2017 in 2016  in 2016
of growth =  

= (50 – 40)  $32,000 = $320,000

 Units of Actual units 

 input required of inputs 
Cost effect of to produce
 2017 output  used to  Input
growth for  in 2016 produce  price
variable costs =  2016 ouput  × in 2016

 Actual units of capacity in Actual 

Cost effect of  2016 because adequate  units of  Price per unit
growth for  capacity exists to produce capacity  of capacity
fixed costs =  2017 output in 2016 in 2016  × in 2016

Architect labor-hours that would be required in 2017 to complete 50 jobs instead of the 40
jobs completed in 2016, assuming the 2016 input-output relationship continued into 2017, equal
æ25,000 ö
ç ´ 55÷
30,000 è 40 ø labor-hours. Architect (software implementation) support capacity
would not change since adequate capacity exists in 2016 to support year 2017 output and
customers.

The cost effects of growth component are

Architect labor costs (30,000 – 24,000)  $35 = $210,000 U

Architect (Software implementation) support cost (70 – 70)  $3,200 = 0
Cost effect of growth $210,000

In summary, the net increase in operating income as a result of the growth component equals:
Revenue effect of growth $320,000 F
Cost effect of growth 216,000
Change in operating income due to growth $104,000