What is Activity Cost Assignment?

Activity cost assignment involves the use of activity drivers to assign costs to cost objects. The concept is used in activity-based costing to give more visibility to the total amount of costs that are incurred by cost objects. Cost assignment is essential to a better understanding of the true cost of cost objects. With proper activity cost assignments, managers are in a better position to make informed decisions about where to allocate funds, enhance systems, and set the prices of goods and services.