What method does Crave Cookies use to determine the cost of cookie boxes?

According to Crave Cookies' 2025 Franchise Disclosure Document, the cost of cookie boxes, which constitute the company's inventory, is determined using the first-in, first-out (FIFO) method. This valuation method assumes that the first units purchased are the first ones sold. Additionally, the cookie boxes are stated at the lower of cost or net realizable value. This means Crave Cookies will record the value of the cookie boxes at either their original cost or the amount they could be sold for, whichever is lower. This is a standard accounting practice to ensure that inventory is not overstated on the balance sheet.

For a prospective Crave Cookies franchisee, understanding the inventory valuation method is important for managing their store's finances. The FIFO method can impact the reported cost of goods sold and, consequently, the store's profitability. In a period of rising costs, FIFO can result in a lower cost of goods sold and a higher net income, which could have tax implications. Conversely, if costs are declining, FIFO can lead to a higher cost of goods sold and lower net income.

Furthermore, the principle of stating inventories at the lower of cost or net realizable value ensures that the franchisee's financial statements accurately reflect the value of their inventory. If cookie boxes become damaged or obsolete, their value must be written down to their net realizable value, which is the estimated selling price less any costs to sell. This could impact the franchisee's profitability and should be carefully monitored. Franchisees should consult with a financial professional to fully understand the implications of the FIFO method and the lower of cost or net realizable value principle on their business.