Pondside Apartments is a 900-unit apartment complex. When the apartments are 90% occupied, monthly operating costs total $ 226 comma 220. When occupancy dips to 80%, monthly operating costs fall to $ 220 comma 640. The owner of the apartment complex is worried because many of the apartment residents work at a nearby manufacturing plant that has just announced it will close in three months. The apartment owner fears that occupancy of her apartments will drop to 70% if residents lose their jobs and move away. Assuming the same relevant range, what can the owner expect her operating costs to be if occupancy falls to 70%?

$215,060

Explanation:

90% occupancy rate (810 apartments) costs = $226,220

80% occupancy rate (720 apartments) costs = $220,640

we can use the high low method to calculate both variable and fixed costs:

variable costs = ($226,220 - $220,640) / (810 - 720) = $62 per apartment

fixed costs = $226,220 - ($62 x 810) = $176,000

if occupancy rate is 70%, then 630 apartments will be occupied:

total cost for 630 apartments = $176,000 + (630 x $62) = $215,060

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