What Is Contribution Illusion in Manufacturing Cost Systems?
Contribution illusion occurs when a product, customer, or division appears profitable under existing cost allocation mechanics but becomes significantly less profitable once overhead drivers are aligned with actual operational behavior. This distortion typically develops when overhead allocation methods fail to reflect how production resources are truly consumed. The accounting system continues producing accurate financial statements, […]
What Is Margin Drift in Manufacturing and Why Do Most Companies Miss It?
Margin drift occurs when the costing model inside a manufacturing system gradually stops reflecting how production actually behaves. Standard costs become outdated, overhead pools expand without recalibration, and absorption rates fail to adjust to operational changes. Financial reports may still reconcile and margins may appear stable, but the reported profitability slowly separates from economic reality. […]