The Activity-Based Costing Techniques to Managerial Decision Improvement

Abstract

This study applies the Activity-Based Costing (ABC) technique in the Midland Oil Company (a state-owned enterprise) to examine its role in supporting economic decision-making. The aim is to determine the cost of producing a barrel of oil and to rationalize such costs based on systematic approaches. The research addresses the problem of relying on unsystematic costing methods, which has led to unreliable data, higher uncertainty in decision-making, and a noticeable increase in oil production costs across the Iraqi oil sector. These challenges are attributed to the absence of modern managerial practices and the lack of adoption of advanced cost management techniques, resulting in significant resource waste, particularly with unutilized associated gas, The study is built on the hypothesis that adopting activity-based costing improves cost system outputs and supports managerial decisions. Findings show that the company does not classify its activities in line with strategic cost management techniques, leading to inequitable cost allocation and difficulties in tracing costs. However, applying ABC enabled the identification of field-specific activities, elimination of non-value-adding costs, and better resource utilization. Consequently, the company reduced its total production costs by IQD 70,796 million, representing an 8.49% decrease, through the removal of economically unproductive activities.