What is job order costing primarily used for?

Job order costing is primarily utilized in scenarios where products are manufactured based on specific customer orders. This costing method tracks the costs associated with individual jobs or orders, allowing companies to determine the exact expenses incurred for materials, labor, and overhead on a per-job basis. Such detailed tracking is particularly important in industries where products are customized or produced in small quantities, as it enables businesses to accurately bill customers based on the specific requirements and specifications outlined in each order.

In contrast, standardized product manufacturing typically employs process costing, as costs are averaged over large quantities of homogeneous products rather than tracked per job. Similarly, batch production involves multiple units of the same product type being produced at once, which might use either job order or batch costing methods, but does not specifically align with the highly individualized focus of job order costing. Establishing fixed price contracts often requires a broader pricing strategy that does not depend on the specific cost of each job, making it less relevant to the core purpose of job order costing.

Overall, job order costing stands out as the most applicable method for businesses engaged in manufacturing that is responsive to individual customer orders, providing clarity on the costs associated with delivering custom products.