Manufacturing costing and Inventory valuations are essential processes that provide companies with valuable insights into the state of their business. An Inventory Valuation, in particular, may seem like a simple enough process at first glance, but it is a critical process that can easily become a major pain point for growing businesses, especially if they attempt to conduct inventory valuations using antiquated technologies or choose otherwise inappropriate valuation methodologies.

Fortunately, even if your business finds itself struggling with it, you can make inventory valuation an easy-to-manage process by doing two things. First, you must implement a robust enterprise resource planning (ERP) software solution that includes user-friendly inventory valuation tools. Secondly, you need to carefully assess which inventory valuation approach will yield the most timely and relevant data for your business.

With both of those recommendations in mind, join us as we explore inventory valuation, including the various methods for properly conducting this financial assessment and how ERP software works to simplify the process.

What Is An Inventory Valuation?

Starting with a definition of the phrase, an inventory valuation itself refers to the process of assessing the value of any unsold stock. Inventory valuations should be conducted any time you prepare quarterly, monthly, or annual financial statements. Although inventory stock is illiquid, it is still an organizational asset that must be recorded on your balance sheet.

The Importance of Accurate Inventory Valuations

Conducting inventory valuations will help you determine how well your business is performing by assessing your inventory turnover ratio, an important statistic that you should evaluate when making stock-purchasing decisions. 

Throughout the year, you may pay varying purchase prices for your current stock, and attempting to look up and calculate the actual purchase price of every single item in your inventory would be incredibly time-consuming and impractical. Therefore, you must choose an inventory valuation method that will provide an accurate average value in order to prevent turning this process into a weeks-long endeavor. 

Common Inventory Valuation Methods

While there are many ways to calculate inventory valuation, three approaches are the most common, which are as follows:

• FIFO: First in, first out
• LIFO: Last in, first out
• WAC: Weighted average cost

When using the FIFO method, you assume items that were purchased earlier in the year were also the first ones to be sold from your inventory. As such, you will calculate the inventory valuation by using the average purchase price that you paid later in the fiscal year. 

LIFO assumes the exact opposite: When using this approach, you will calculate inventory valuation using average purchase prices from early in the fiscal year. 

Many vendors prefer the WAC method, as it is an approach that averages out the cost of items throughout the entire fiscal year. The average cost is determined by dividing total stock costs by the number of units purchased during the year. 

Supporting Inventory Valuation Efforts with ERP Software

At this point, you may wonder what all of these inventory valuation methods have to do with ERP software. The link between both concepts is actually rather simple.

Straightforward, top-end ERP software, such as Acumatica ERP, includes inventory tracking and valuation tools that you can use to effectively value your current supply. The Acumatica platform tracks all relevant inventory-related financial data, including the average purchase price of your stock, how much of it is remaining, etc. 

More importantly, Acumatica ERP software can support a multitude of different inventory valuation methods, which means that you can choose the approach that best aligns with the needs of your business — be that FIFO, LIFO, WAC, or something else entirely — and you can gain insights into perpetual inventory, fixed and variable overhead expenses, job costs, disassembly valuations, and more. 

Ready to Simplify Inventory Valuation with Acumatica?

One thing to note is that not all ERP software solutions are created equal. When selecting new ERP software for your business, it is vital that you choose a solution that includes a robust lineup of inventory valuation tools, as well as other useful capabilities. 

With that in mind, Acumatica ERP software represents the ideal software for any growing business, but how do you oversee the implementation of such sophisticated and powerful software?

That’s where we come in. At Advanced Solutions & Consulting Co., we specialize in planning, overseeing, and managing Acumatica ERP software deployment. Our experienced team can ensure that your implementation is seamless, efficient, and timely so that you can maximize the return on your new technology investment.

If you’re ready to make inventory valuation and other financial management processes simpler than ever, contact us to request a free demo of Acumatica ERP software.

Learn More: Principles of Inventory Valuation and Manufacturing Costing Strategies eBook

Our eBook, Principles of Inventory Valuation and Manufacturing Costing Strategies, looks at the advantages and disadvantages of inventory valuation and manufacturing costing options and how ERP applications factor into the equation. You will learn: 

• Fundamentals of inventory valuation and manufacturing costing.
• Different types of inventory valuation strategies.
• Various job costing methods.
• Considerations for choosing the best inventory valuation and manufacturing costing options.
• Valuation and costing requirements using a detailed ERP feature checklist.

Click here to download now.

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