11.3 Optional Purchases Versus Variable Consideration

When an entity enters into a contract to deliver a variable volume of goods or services, the entity should first determine whether the nature of its promise is to provide an option to purchase additional goods or services. However, in some contracts with customers, it may be difficult to differentiate between an option to purchase additional goods or services (which the entity would need to evaluate to determine whether a material right — and, therefore, a separate performance obligation — exists) and variable consideration in the transaction price that is driven by variable volumes (i.e., the additional volumes are part of a single performance obligation). When determining the nature of its promise in such arrangements, an entity should consider the following:

• If the customer can make a separate purchasing decision to buy additional distinct goods or services (or change the goods or services to be delivered) and the entity is not presently obligated to provide those goods or services before the customer exercises its rights, the customer’s ability to make that separate purchasing decision would be indicative of an option for additional goods or services.
• Conversely, if future events (which may include the customer’s own actions) will not obligate the vendor to provide additional distinct goods or services (or change the goods or services to be delivered), any additional consideration triggered by those events would instead be variable consideration.