Smith Concrete Company owns enough ready-mix trucks to deliver up to 100,000 cubic yards of concrete per year (considering each truck's capacity, weather, and distance to each job). Total truck depreciation is $200,000 per year. Raw materials (cement, gravel, and so on) cost about $25 per cubic yard of cement

Depreciation of truck if it delivers 30,000 cubic yard of concrete in one year 200,000 / 100,000 * 30,000 = $60,000

Cost of raw material for 2,000 cubic yard (2,000 * $25 )= $50,000

Explanation:

Depreciation is allocation of an assets cost over its useful life. Depreciation expense is considered as a tax shield. The larger the depreciation expense, the lower will be the taxable income. Smith Concrete company uses concrete material as a base for truck depreciation. Truck depreciation cost is fixed cost. The raw material cost of concrete is variable.

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