Revenue – ifrs 15 handbook

Example 3B – Custom product with learning curve effect: Material 
right
Modifying Example 3A, the decreases in the price per part are incremental 
to the expected reduction in Automotive Supplier S’s costs along its learning 
curve. The price reductions are also incremental to S’s typical decrease in price 
for other mature parts of a similar size and complexity. 
Considering these quantitative and qualitative factors, S concludes that the 
discounted prices on the optional purchases do not reflect the stand-alone 
selling price for those parts and the contract includes a material right.
Example 4 – Custom production line: No material right
Shipbuilder B enters into a contract with Customer C to manufacture a highly 
customised ship. To manufacture this custom ship, B needs to set up a unique 
production line, which it plans to run for one year. C commits to purchasing five 
ships at a price of 1,000 per ship. C has the option to purchase additional ships 
at a price of 500 per ship as long as the order is placed three months before the 
end of the one-year period during which the production line will be in place. 
B estimates the stand-alone selling price of the ship using an expected cost 
plus a margin approach. The decrease in the price per ship after the first five 
ships reflects the expected reduction in B’s costs once the production line 
is configured.
The pricing of the committed volume of ships reflects B’s expected margin, 
including the costs to set up the custom production line. Once the production 
line is set up, B’s costs are limited to the incremental costs for that specific 
ship. Therefore, the stand-alone selling price estimated using the expected cost 
plus a margin approach is lower. Additionally, B considers that the right does 
not accumulate because there is a committed volume of ships and any optional 
orders have the same discounted price. Therefore, in the absence of any other 
quantitative or qualitative factors B concludes that the reduced price for the 
optional ship orders represents their stand-alone selling price and there is no 
material right.

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272 | Revenue – IFRS 15 handbook