How does Carbones Pizzeria determine the transaction price in its revenue recognition process?

According to the 2025 Carbones Pizzeria Franchise Disclosure Document, the company determines the transaction price as part of its revenue recognition process. Carbones Pizzeria recognizes revenue when control of promised products or services is transferred to customers, reflecting the consideration the company expects to receive for those products and services. This determination is part of a five-step process.

The five steps Carbones Pizzeria uses to recognize revenue from contracts are: identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when the company satisfies a performance obligation.

For royalties, Carbones Pizzeria receives a service fee based on a percentage of sales each week from franchised locations. Revenue from royalties is recognized each week based on a percentage of reported franchisee sales. For initial and renewal franchise fees, the company recognizes these fees over the contractual term of the franchise agreement, which is typically 10 years. These fees are associated with services provided to the franchisee, such as site selection assistance, training, and the implementation of accounting and quality control systems.