Question - Purpose: For a Zume Pizza delivery truck that uses a combination of robots, AI, and GPS in pizza preparation and delivery, what will be capitalized versus expensed?
Zume Pizza uses a combination of robots, artificial intelligence (AI), and GPS in its food trucks to deliver pizzas to customers' houses just as the pizza is finished baking.
The process starts with a customer using Zume Pizza's app to order pizza. The pizza combinations offered by Zume have been derived by analyzing customer data to offer several popular options. These preset combination recipes are programmed into Zume's computers, so that its robots can build and bake the pizzas efficiently.
All pizza preparation and baking happens in the Zume pizza truck. Once the customer orders a pizza, a worker in the Zume food truck will toss the dough, cut the vegetables, and put on toppings. A robot will put on the pizza sauce. Each Zume pizza truck has 56 pizza ovens, which are each individually connected to the order system and the truck's GPS. A robot will put the pizza into the designated oven exactly four minutes before the truck reaches the customer's house. A worker will pull out the pizza when it is finished and place it into the cutter, where a robot will cut the pizza. The pizza is boxed and the pizza is delivered to the customer's door, all within a few minutes of finishing baking. Eventually, Zume's owners hope to use a robot to remove pizzas from the oven as well.
Zume Pizza is based in Mountain View, California. One of its cofounders is a Microsoft alum and was also a cofounder of Zynga, the company that produced Farmville and Words with Friends. The other Zume cofounder has a background in the restaurant industry.
1. Discuss whether Zume would capitalize or expense the following items:
- cost of the white panel truck
- cost of the 56 pizza ovens inside the truck
- custom paint job on the exterior of the truck
- replacement tires after the truck has been driven 75,000 miles
2. What is the impact of capitalizing an item on the financial statements?
3. What is the impact of expensing an item on the financial statements?