16. Arnold Company uses the part K90 in the production of one of its products. Every year, a total of 5,000 units of this part are produced and used. The reported costs of producing the part at this level of activity are shown in the below table. An outside supplier has offered to sell the part to the company for $23 each. If this offer is accepted, the supervisor's salary and all the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago, and it has no resale value or any other use. The allocated general overhead represents the fixed costs of the entire company, none of which will be avoided if the part is purchased instead of produced internally. In addition, the space used to make the part K90 can be used to make more of one of the company's other products, generating an additional segment margin of $18,000 per year for that product. What will be the impact of buying the part K90 from the outside supplier on the company's overall net operating income? *

The overall net operating income will increase by $3,000 per year

The overall net operating income will increase by $18,000 per year

The overall net operating income will increase by $50,000 per year

The overall net operating income will decrease by $15,000 per year

None of the above

Item Direct Materials Direct Labor Variable Manufacturing Overhead Supervisor's Salary Depreciation of Special Equipment Allocated General Overhead Amount $7.50 per unit $4.50 per unit $1.25 per unit $6.75 per unit $7.25 per unit $5.75 per unit