How will Chipotle recognize the costs of Chippy, its tortilla-chip-making robot?

Chipotle is currently testing Chippy, a robot that makes tortilla chips. Chippy makes the chips less than perfect so that they appear to be made by a human. Customers are used to finding a chip with a little more salt or a little extra lime, so Chippy is making those subtle variations in the chips.

Picture of Chipotle chips
Each Chipotle chip is different.

Chipotle’s test kitchen in Irvine, California, is currently testing Chippy. Chipotle plans to test Chippy in a restaurant in California later this year. Depending on the results of testing, Chipotle may roll out Chippy across the U.S.

The ongoing labor shortage has led fast-food restaurants to explore the use of robots to allow restaurants to function with fewer workers. White Castle has a robot called Flippy that places baskets in deep fryers, shakes the baskets in the oil as they cook, and monitors for the appropriate cooking time for chicken tenders and tater tots. Buffalo Wild Wings uses Flippy Wings, which was designed to fry chicken wings.

Because the costs and other details associated with a Chippy robot are not available, let’s make some assumptions. Let’s say that a Chippy robot costs $15,000 and is expected to last five years. Sales tax on the purchase is $600. The transportation costs to get a Chippy robot from the factory to Chipotle is $500. Installation costs per robot are estimated to be $700. Assume that annual maintenance on one Chippy robot is $1,200 per year.

See the following tutorial video on capitalizing versus expensing expenditures and then answer the questions following the video. (You can also access the video at this link.)

Questions

  1. What is the total cost of a Chippy robot that will be capitalized and recorded as a plant asset?
  2. On what financial statement would the Chippy robot plant asset be found?
  3. Should the annual maintenance costs of a Chippy robot be capitalized or expensed?
  4. On what financial statement would the annual maintenance costs of a Chippy robot be found?

About Dr. Wendy Tietz, CPA, CMA, CSCA, 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 Education.

2 Responses to “How will Chipotle recognize the costs of Chippy, its tortilla-chip-making robot?”

  1. Thank you Dr. Wendy for sharing this exercise. I am currently teaching Chapter 10 – Plant Asset in my Accounting I course and I plan to use this exercise as a class assignment.

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