A. We need to determine the beginning raw materials inventory, the ending raw materials inventory and the amount of raw materials needed for production, so we can determine how much raw material will need to be purchased for the given production period of July through September. Beginning inventory of raw materials as of July 1 needs to be 30% of July's production requirements: 10,000 × 2 pounds per unit × 30% = 6,000 lb. The question tells us that the company forecasts that there will be 6,000 pounds of raw material on hand at the end of June, so the beginning inventory for July will be sufficient (i.e., no additional raw materials will need to be purchased to adjust the beginning inventory). Ending inventory of raw materials for September needs to be 30% of October's production requirements: 11,000 × 2 pounds per unit × 30% = 6,600 lb.

The number of units to be produced from July through September is 35,000 units (10,000 + 12,000 + 13,000). The amount of raw materials required for production in these three months is 70,000 lb. (35,000 × 2 pounds per unit). Now we can calculate the amount of materials that the company will need to purchase during these three months. The standard calculation for inventory is as follows, and if we know three of the four numbers, we can always find the fourth one:

Beginning Inventory      6,000

Plus: Purchases            ?

Minus: Materials Used   -70,000

Equals: Ending Inventory 6,600

We can solve this with an algebraic equation, or we can simply "back into" the missing purchases number:

6,000 + X - 70,000 = 6,600

X - 64,000 = 6,600

X = 70,600

We know that the difference in the price of materials purchased before June 30th and after June 30th is $0.10 ($1.10 - $1.00). Thus, the effect of price increase for raw materials for the given period is $7,060 ($0.10 × 70,600).

B. This answer is incorrect. See the correct answer for a complete explanation.

C. This answer is incorrect. See the correct answer for a complete explanation.

D. This answer is incorrect. See the correct answer for a complete explanation.