Cost assignment definition
/What is Cost Assignment?
Cost assignment is the allocation of costs to the activities or objects that triggered the incurrence of the costs. The concept is heavily used in activity-based costing, where overhead costs are traced back to the actions causing the overhead to be incurred. The cost assignment is based on one or more cost drivers.
Cost assignments are associated with direct costs and indirect costs. Assignments of costs differ, based on which cost has been incurred. These differences are as follows:
Assignment of direct costs. Direct costs can be traced directly to a cost object. For example, the valve used on a basketball is a direct cost of the basketball, since it is an item that is directly incorporated into the product. These costs are assigned to cost objects based on a bill of materials (in the case of materials) or a time sheet (in the case of labor).
Assignment of indirect costs. Indirect costs cannot be traced directly to a cost object. For example, the cost of the materials manager who schedules production activities for a number of different products cannot be directly assigned to each of the products manufactured. Instead, these costs are assigned to cost objects using a reasonable basis of allocation.
Example of a Cost Assignment
A university operates its own maintenance department; the cost of the department is assigned to the various other departments of the university based on their consumption of the department's maintenance services.
Terms Similar to Cost Assignment
Cost assignment is also known as cost allocation.