Abstract A simulation-based optimization methodology for designing unitary residential air conditioners with focus on both energy performance enhancement and cost savings is presented. A steady-state system simulation model was put forward for a 2.5-ton nominal cooling capacity split-type air conditioning unit operating with R-410A as the working fluid. The model predictions for cooling capacity, sensible heat ratio (SHR) and coefficient of performance (COP) were compared with experimental data, when it was found that the model is able to predict the experimental trends within a ±6% error band. The model was then used to find out the condenser and evaporator geometries (face area, heat transfer area) that enhance the system COP for a fixed cost. On one hand, it was observed that the COP can be increased by 7% if the cost is held fixed. On the other hand, cost savings of 33% were achieved when the system COP was held constant.