How is the Mold Depreciation Cost component of the tire price calculated for Big O Tires?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
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The Mold Depreciation Cost component of the tire price will be calculated by dividing the total budgeted Mold Depreciation expense for the year by the budgeted number of Big O Tire units expected to be sold during the year to arrive at a per-unit Mold Depreciation Cost component of the tire price. This component of the tire price will remain constant throughout the year with the following exception. Molds are generally depreciated over an estimated useful life of five years. Prior to the beginning of each quarter, Big O Accounting meets with the Big O Product department and determine if the remaining depreciable life of any molds should be shortened based on the anticipated future production of tires using specific
molds. Any depreciable lives that need to be shortened based on this criteria will be shortened for accounting purposes, and the impact of the resulting increase in depreciation will be added to the Mold Depreciation cost component of the pricing model as of the beginning of that quarter.
C. Rebill Charge
The Rebill Charge is currently $3.00 per Rebill Tire. This charge may be increased or decreased in our discretion as required by business operations after consultation with the Franchise Advisory Council.
D. Distribution Costs
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- The total budgeted Distribution Cost for the year based on the Distribution Cost components set forth in the Franchise Agreement will be divided by the total budgeted tire units to be sold (excluding rebill units) and the resulting Distribution Cost per unit ("DCPU") factor will be added to tire pricing during the year. This component of the tire price will remain constant throughout the year.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to Big O Tires's 2025 Franchise Disclosure Document, the mold depreciation cost is a component of the tire price. The cost is calculated by dividing the total budgeted mold depreciation expense for the year by the budgeted number of Big O Tire units expected to be sold during the year. This calculation results in a per-unit mold depreciation cost component that is included in the tire price. This component typically remains constant throughout the year. Molds are generally depreciated over an estimated useful life of five years.
However, there is an exception to the constant cost. Prior to each quarter, Big O Accounting and the Big O Product department assess whether the remaining depreciable life of any molds should be shortened. This decision is based on the anticipated future production of tires using specific molds. If the depreciable life of a mold is shortened, it is adjusted for accounting purposes.
The impact of the resulting increase in depreciation is then added to the mold depreciation cost component of the pricing model at the beginning of that quarter. This adjustment ensures that the depreciation costs are accurately reflected in the tire prices throughout the year, especially when there are changes in the expected lifespan of the molds used in production. At the end of the year, Big O will calculate the total amount of Mold Depreciation Cost to be allocated to Big O I Tires that were sold to Business Format Franchises, based on the Big O I Tire units sold to Business Format Franchise Stores as a percent of the total Big O I Tire units sold, and that amount will be compared to the total Mold Depreciation Cost actually included in the tire price for Big O I Tire units that were sold to Business Format Franchise Stores. Any difference, positive or negative, will be included in the End of Year Pricing Adjustment.