Component &2 cannot be assigned to setup activity &1

What causes this issue?

You have tried to assign a component from the product structure to a
setup activity.
This assignment is not allowed.

System Response

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

How to fix this error?

Components can only be assigned to 'production' activities.

Procedure for System Administrators

Error message extract from SAP system. Copyright SAP SE.