Costing implications in the pricing of petroleum products : a case study

Abstract

Purpose: The main aim of this dissertation is to analyse the pricing structures within the petroleum industry, evaluate their implications on conflicting costing reports, and recommend procedures to integrate the internal reports as a basis for better decision making.

Design: To achieve the research objectives, a case study method was considered the most appropriate. Both primary and secondary data was collected in the research process. Primary data was acquired from semi-structured interviews with personnel within the procurements, risk management and finance departments of the Case Company. An observation period was also necessary for a better understanding of the processes.

Findings: This research revealed that this dynamic industry is unique and very technical. The application of different costing methods in the Case Company can result in substantial differences in revenue, cost of sales and inventory valuations. Thus, the comparison of various internal costing reports prepared by different departments can be misleading and create conflict, unless their purpose is explained and communicated clearly to the final users.

Conclusions: Conflicts are a deficiency within the Case Company and a rapid solution is necessary to minimise the discrepancies between the internal reports and drive the Company forward. The change proposed by the researcher in the costing method within the finance department should be pilot tested to ensure it will achieve the desired effect.

Value: Owing to the distinctive pricing structures, as well as the technical issues in the procurements and costings of petroleum products, the literature available is very limited. This research has tried to provide a better understanding on the subject. The findings revealed interesting factors that can be useful to other similar organisations.