Skip NavigationSkip Main

by

Rachael Plant

Share to Social

Copied!

Mar 28, 2024

4 minute read

Fleet Management Blog

Inventory Valuation Methods Improve Parts Cost Tracking

Fleetio added three parts inventory valuation methods to its platform: average cost method (ACM), last in, first out (LIFO) and first in, first out (FIFO). These provide better inventory cost tracking associated with fluctuating parts costs and allow fleets to appropriately assign costs to services for improved true total cost of ownership data.

Inventory Valuation Methods Improve Parts Cost Tracking

Pain Points in Inventory Cost Tracking

Inventory management encompasses everything from initial parts purchasing and on-hand counts tracking to usage, replenishment and cost management. Because prices fluctuate over time, it can be difficult to ensure that you’re applying accurate parts costings to services performed. Incorrect parts cost data can throw off a fleet asset’s total cost of ownership (TCO) and lead to inaccuracies in parts inventory value.

As fleets continue purchasing parts to replenish used stock, it can be hard to keep track of and account for price increases and reductions. Using fleet management technology with a spare parts management feature allows fleets to choose their preferred valuation method — in Fleetio’s case, ACM, LIFO or FIFO— to improve inventory management and capture accurate cost data. While we can’t speak for all parts inventory software, using these valuation methods in Fleetio can help fleets accurately account for parts inventory used or stored for repairs and provides visibility into the full cost of in-house maintenance.

Inventory Valuation Methods in Fleetio

ACM, LIFO and FIFO inventory valuation in Fleetio makes keeping up with parts costs — and assigning appropriate costs to work orders — manageable through the power of automation. Basically, just set the method that fits best with your organization’s accounting goals and needs, and everything after falls into place. Inventory sets are automatically created from parts purchase orders. When parts are added to digital work orders, Fleetio automatically assigns the appropriate costing based on the valuation method you’ve set, allowing you to easily and accurately track service cost. Likewise, the parts record will automatically be updated based on the valuation method set.

When you set a valuation method in Fleetio, you gain high-overview metrics such as total value of current inventory and average cost of parts across all purchases. You can track parts use and associated costs in real time with such fleet management reports as work order summary by vehicle, parts by vehicle, purchase orders list and more. Reports are configurable, so you can quickly and easily surface the data that matters the most for improved inventory management and cost control. But exactly what is ACM, LIFO and FIFO, and how do these valuation methods work?

Inventory Management Made Easy

Experience a simpler way to manage inventory with precision cost control, custom auto-reorder thresholds and enhanced service tasks in Fleetio!

Learn more

ACM, LIFO and FIFO 101

Using ACM, LIFO or FIFO, fleets can attribute the appropriate cost of parts to specific assets, providing a full view of TCO, including fluctuations in TCO over time as prices and parts availability change. Furthermore, technicians can more accurately account for service costs on work orders based on the price of the part at the time of purchase. These valuation methods provide more accurate parts costing data per work order and can improve management around tax liability or inventory valuation according to the strategic needs and accounting practices of your organization.

ACM

ACM may well be the most widely accessible valuation method and is calculated by dividing the total cost of a specific part in inventory by the quantity of that part. So, for example, if you buy two cases of the same oil filter with one case costing $14.99 per unit and the other costing $16.99 per unit — and assuming the filters come 12 to a case — the average cost per filter comes out to $15.99. This valuation method helps evenly distribute parts cost across assets for improved TOC data and is especially beneficial for fleets needing balanced costing across departments.

LIFO

The LIFO valuation method assumes that the last or most-recent unit to arrive in inventory is used first. Using inventory sets — that is, grouping parts based on type and procurement date — helps ensure this accounting process is followed. The biggest potential benefit to the LIFO method is tax reduction. When an organization counts its fleet parts inventory at peak costs, profit margins are reduced, meaning lower taxable income. This is a particularly good method of choice during extended times of continuous price inflation. LIFO is only an acceptable inventory valuation method in the United States and is the least common method used. If your fleet decides to follow the LIFO inventory valuation method, you are also required to file this election with the IRS.

FIFO

The more common valuation method, FIFO, assumes that the first unit added to inventory (i.e. the oldest inventory) is used first. Typically, the most recently ordered parts will be more expensive due to price increases — although this is not always the case — so using the older parts first will increase an organization’s profit margins, leading to increased taxable income and higher inventory valuation. Fleets can benefit from FIFO due to the method providing a more accurate alignment of expenses versus the flow of inventory. This method also allows for better accounting and real-time analytics.


Inventory Cost Control

Explore the benefits of inventory management and parts valuation in Fleetio!

Start free trial

About the Author


Rachael Plant

Rachael Plant

Senior Content Marketing Specialist

Rachael Plant is a Content Marketing Specialist at Fleetio whose automotive background spans from managing auto parts inventories to overseeing fleet-specific editorial in national trade publications. She resides deep in the middle-of-nowhere Alabama with her two dogs and, thankfully, reliable GPS.

Ready to get started?

Join thousands of satisfied customers using Fleetio

Questions? Call us at 1-800-975-5304