Will Domino’s capitalize or expense the costs associated with its new pizza delivery vehicle, the DXP™?

Photo of Domino's Pizza Delivery Vehicle

Source: Domino’s

Domino’s (DPZ) recently made the news when it launched its pizza delivery vehicle, the Domino’s DXP™ (Delivery Expert).  This delivery car has seating for just one person; the rest of the car is equipped for pizza delivery.  It is equipped with a warming oven and can hold up to 80 pizzas. It has several storage areas for napkins, dipping sauces, 2-liter bottles of soda, and other supplies. If it is dark at delivery time, the car has a spotlight that can project the Domino’s logo onto the ground to light the way for the driver. The DXP™ is a modified Chevy Spark and gets about 39 miles per gallon.  At the October 2015 launch, there were 97 DXP™ in Domino’s nationwide fleet, with more to come.

Fun URL: See if there is a DXP™ near you by going to http://www.dominosdxp.com/#locations/enter-zip

Questions

  1. When Domino’s purchases a standard Chevy Spark automobile for modification, what costs associated with that purchase will be capitalized?
  2. What costs might be incurred to customize the Chevy Spark into the DXP™ pizza delivery vehicle? Will these costs be capitalized or expensed?
  3. Assume that Domino’s had been using Chevy Spark electric cars to deliver pizzas (not customized.) Would Domino’s capitalize or expense the costs of customizing the existing Chevy Spark electric cars?
  4. Once Domino’s begins using the DXP™ pizza delivery vehicle to deliver customer orders, what costs are likely to be associated with its use? Will those costs be capitalized or expensed?
  5. Assume that after five years of use, the pizza delivery vehicle engine needs to be replaced. The replacement engine will extend the life of the pizza delivery vehicle by another five years. Will the cost of the replacement engine be capitalized or expensed?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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