Question - Jones Lumber had an exclusive three-year supply agreement with Wood Construction. The contract called for lumber sales of $4,000,000 per year from Jones Lumber to Wood Construction. After one year, Wood Construction canceled the contract without cause, and in the resulting lawsuit the court found Wood Construction liable for breach of contract.
Jones Lumber had an average gross profit of 40%, and average net income equal to 10% of sales. On average, 70% of Jones Lumber's operating expenses are fixed.
Required: Calculate the most reasonable amount of actual damages suffered by Jones Lumber from the breach of this contract using only the information provided. Be certain to use all of your forensic accounting skills learned in this course and your accounting skills learned in other courses you have taken.