Lakeview Apartments is a 750-unit apartment complex. When the apartments are 90% occupied, monthly operating costs total $214,125.

When occupancy dips to 80%, monthly operating costs fall to $210,000.

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 55% 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 55%?

Let's begin by determining the formula that is used to calculate the variable cost (slope).

Change in cost

/

Change in volume

=

Variable cost (slope)

Now determine the formula that is used to calculate the fixed cost component.

Total operating cost

-

Total variable cost

=

Fixed cost

Use the high-low method to determine Lakeview's operating cost equation.

y = $

x + $