Which term describes the costing system used for work ordered by customers?

Which term describes the costing system used for work ordered by customers?

• A. Batch costing
• B. Specific order costing
• C. Job costing
• D. Service costing

Answer: (B)

Specific order costing is used when work is ordered by a customer and each order is distinct. Costs are traced to that particular order, with direct materials, direct labour and a share of overhead allocated to the specific job. This setup lets you calculate the exact cost and profitability of each customer order and is ideal for bespoke or customized work where items aren’t identical. By contrast, batch costing applies to producing batches of identical items, service costing is used for services where costs are allocated to the service provided rather than to a physical job, and job costing is the broader idea of tracking costs by job—here the emphasis is on the individual customer order, so the term specific order costing fits best.

Specific order costing is used when work is ordered by a customer and each order is distinct. Costs are traced to that particular order, with direct materials, direct labour and a share of overhead allocated to the specific job. This setup lets you calculate the exact cost and profitability of each customer order and is ideal for bespoke or customized work where items aren’t identical.

By contrast, batch costing applies to producing batches of identical items, service costing is used for services where costs are allocated to the service provided rather than to a physical job, and job costing is the broader idea of tracking costs by job—here the emphasis is on the individual customer order, so the term specific order costing fits best.