Answer:
Crawford Construction
1. Crawford Construction sold and replaced its inventory:
a. 4.14 x
2. With Construction Industry Inventory Turnover Ratio as 4.55x, Crawford Construction:
b. Crawford Construction is holding more inventory per dollar of sales compared to the industry average
Explanation:
a) Data and Calculations:
Quick ratio = 2.00x,
Cash = $36,225
Accounts receivable = $20,125
Inventory = x
x= $80,500 - 36,225 - 20,125 = $24,150
Total current assets = $80,500
Total current liabilities = $28,175
Annual sales = $100,000
Using annual sales instead of cost of goods sold to calculate the inventory turnover, = Turnover/Inventory = $100,000/$24,150 = 4.14x
b) Quick ratio equals (Current assets - Inventory)/Current Liabilities. Computing the quick ratio in place of the current ratio can be used to identify how Crawford Construction can meet its current (short-term) debts without selling inventory and recovering funds from the sale.
c) The Inventory Turnover Ratio divides the cost of goods sold by the average inventory. The Sales value can approximate the cost of goods sold. The ratio shows the efficiency of Crawford Construction in handling its inventory. The higher the value of the ratio, the better, showing that Crawford is more efficient when it gets a higher turnover ratio.
