Improve commission structure

Oct 13, 2025 by vinooalluri.com 73 views

Arderi Air Conditioning: A Case Study of Profit Maximization

Arderi Air Conditioning is a company that specializes in the production and sale of air conditioners. With a single primary model, the company aims to maximize profits by selling its products at a higher price than the production cost. In this article, we will delve into the details of Arderi Air Conditioning's business model, including the production and sales costs, as well as the revenue generated from the sale of its air conditioners.

Arderi Air Conditioning produces a single model of air conditioner, which costs $\$61.25$ to produce per unit. This is the fixed cost incurred by the company for producing each unit. On the other hand, the company sells each unit of the air conditioner for $\$142.50$ . This is the revenue generated by the company from the sale of each unit.

To calculate the profit generated by Arderi Air Conditioning, we need to subtract the production cost from the sales price. The profit per unit is calculated as follows:

Profit per unit = Sales price - Production cost = $\$142.50$ - $\$61.25$ = $\$81.25$

This means that for every unit sold, Arderi Air Conditioning generates a profit of $\$81.25$ . To calculate the total profit, we need to multiply the profit per unit by the number of units sold.

Arderi Air Conditioning employs three salespeople, each of whom earns a commission on the sales made by them. Let's assume that the commission rate is 10% of the sales price. This means that for every unit sold, the salesperson earns a commission of $\$14.25$ (10% of $\$142.50$ ).

To calculate the total revenue and profit, we need to multiply the sales price by the number of units sold. Let's assume that Arderi Air Conditioning sells 100 units of the air conditioner per day.

Total revenue = Sales price x Number of units sold = $\$142.50$ x 100 = $\$14,250$

Total profit = Total revenue - Total production cost = $\$14,250$ - ( $61.25$ x 100) = $\$14,250$ - $\$6,125$ = $\$8,125$

This means that Arderi Air Conditioning generates a total revenue of $\$14,250$ and a total profit of $\$8,125$ per day.

To determine the break-even point, we need to calculate the total fixed costs and the total variable costs. The total fixed costs include the salaries of the salespeople, while the total variable costs include the production costs.

Total fixed costs = Salaries of salespeople = 3 x $\$4,000$ = $\$12,000$

Total variable costs = Production costs = $\$61.25$ x 100 = $\$6,125$

Total costs = Total fixed costs + Total variable costs = $\$12,000$ + $\$6,125$ = $\$18,125$

To calculate the break-even point, we need to divide the total fixed costs by the profit per unit.

Break-even point = Total fixed costs / Profit per unit = $\$12,000$ / $\$81.25$ = 147.5 units

This means that Arderi Air Conditioning needs to sell at least 148 units of the air conditioner per day to break even.

In conclusion, Arderi Air Conditioning's business model is designed to maximize profits by selling its air conditioners at a higher price than the production cost. With a single primary model, the company generates a profit of $\$81.25$ per unit sold. The company employs three salespeople, each of whom earns a commission on the sales made by them. To calculate the total revenue and profit, we need to multiply the sales price by the number of units sold. The break-even point is calculated by dividing the total fixed costs by the profit per unit. By understanding the production and sales costs, as well as the revenue generated from the sale of its air conditioners, Arderi Air Conditioning can make informed decisions to maximize its profits.

Based on the analysis, we recommend the following:

Increase sales: To increase profits, Arderi Air Conditioning should focus on increasing sales. This can be achieved by improving marketing strategies, expanding the sales team, and offering discounts to customers.
Reduce production costs: To increase profits, Arderi Air Conditioning should focus on reducing production costs. This can be achieved by improving manufacturing processes, negotiating with suppliers, and implementing cost-saving measures.
Improve commission structure: To motivate salespeople, Arderi Air Conditioning should consider improving the commission structure. This can be achieved by offering higher commissions for higher sales targets or by introducing a bonus scheme for exceptional sales performance.

By implementing these recommendations, Arderi Air Conditioning can increase its profits and become a more competitive player in the market.
Arderi Air Conditioning: A Case Study of Profit Maximization - Q&A

In our previous article, we delved into the details of Arderi Air Conditioning's business model, including the production and sales costs, as well as the revenue generated from the sale of its air conditioners. In this article, we will answer some of the frequently asked questions related to Arderi Air Conditioning's business model.

Q: What is the profit per unit for Arderi Air Conditioning?

A: The profit per unit for Arderi Air Conditioning is $\$81.25$ . This is calculated by subtracting the production cost from the sales price.

Q: How many units of the air conditioner does Arderi Air Conditioning need to sell to break even?

A: Arderi Air Conditioning needs to sell at least 148 units of the air conditioner per day to break even. This is calculated by dividing the total fixed costs by the profit per unit.

Q: What is the commission earned by each salesperson for every unit sold?

A: Each salesperson earns a commission of $\$14.25$ for every unit sold. This is 10% of the sales price.

Q: What is the total revenue generated by Arderi Air Conditioning per day?

A: The total revenue generated by Arderi Air Conditioning per day is $\$14,250$ . This is calculated by multiplying the sales price by the number of units sold.

Q: What is the total profit generated by Arderi Air Conditioning per day?

A: The total profit generated by Arderi Air Conditioning per day is $\$8,125$ . This is calculated by subtracting the total production cost from the total revenue.

Q: How can Arderi Air Conditioning increase its profits?

A: Arderi Air Conditioning can increase its profits by increasing sales, reducing production costs, and improving the commission structure for its salespeople.

Q: What is the break-even point for Arderi Air Conditioning?

A: The break-even point for Arderi Air Conditioning is 148 units of the air conditioner per day. This is calculated by dividing the total fixed costs by the profit per unit.

Q: How can Arderi Air Conditioning reduce its production costs?

A: Arderi Air Conditioning can reduce its production costs by improving manufacturing processes, negotiating with suppliers, and implementing cost-saving measures.

In conclusion, Arderi Air Conditioning's business model is designed to maximize profits by selling its air conditioners at a higher price than the production cost. By understanding the production and sales costs, as well as the revenue generated from the sale of its air conditioners, Arderi Air Conditioning can make informed decisions to maximize its profits. We hope that this Q&A article has provided valuable insights into Arderi Air Conditioning's business model.

Based on the analysis, we recommend the following:

Increase sales: To increase profits, Arderi Air Conditioning should focus on increasing sales. This can be achieved by improving marketing strategies, expanding the sales team, and offering discounts to customers.
Reduce production costs: To increase profits, Arderi Air Conditioning should focus on reducing production costs. This can be achieved by improving manufacturing processes, negotiating with suppliers, and implementing cost-saving measures.
Improve commission structure: To motivate salespeople, Arderi Air Conditioning should consider improving the commission structure. This can be achieved by offering higher commissions for higher sales targets or by introducing a bonus scheme for exceptional sales performance.

By implementing these recommendations, Arderi Air Conditioning can increase its profits and become a more competitive player in the market.