Exploring the adoption of activity-based costing in selected South African crude oil refineries

Abstract

The South African petroleum industry is regulated, with the Department of Energy stipulating import parity as refinery product costs. Refineries may not have an exact view of actual product cost and may base decisions on deemed costs. Prior literature has not addressed refinery processes or activity-based costing in regulated environments. This study aimed to explore the opinions of selected refinery managers on refinery processes and activity-based costing adoption to inform optimal product mix decisions for selected regulated products. The empirical analysis based on semi-structured interviews determined that even though refineries allocate indirect costs to products based on volume, product mix decisions are based on the regulated price. Although the findings support activity-based costing adoption, this may not be conducive in regulated environments. Further research is required on the relationship between activity-based costing and price regulation, and how activity-based costing may impact the optimisation of the crude oil refinery value chain.