BLIZZARD COMPANY AND COST-VOLUME PROFIT CASE

Members name: Tran Mai Xuan Tran Thi Kim Oanh Le Thi Hong Ngoc Bui Sao Mai I. Introduction and History

1. About Blizza !" Blizzard Entertainment is a premier developer and publisher of entertainment software. After establishing the Blizzard Entertainment label in 1994, the company uic!ly became one of the most popular and well"respected ma!ers of computer games. By focusing on creating well"designed, highly en#oyable entertainment e$periences, Blizzard Entertainment has, maintained an unparalleled reputation for uality since its inception. Blizzard Entertainment%s trac! record of bac!"to"bac! &1"selling games spans more than a decade, and with bloc!buster hits such as 'orld of 'arcraft( , 'arcraft( )))* +eign of ,haos( , -iablo( )) , and .tar,raft( , the company has earned several consecutive /ame of the 0ear awards. )n addition, Blizzard Entertainment%s online"game service, Battle.net(, is one of the largest in the world, with millions of active users. 1he high" uality products based on Blizzard Entertainment%s games have also proven popular and garnered critical acclaim. 1hese products include action figures, novels, manga, board games, pen"and"paper role" playing games, apparel, and the 'orld of 'arcraft 1rading ,ard /ame, which is a bestseller in its category. E$tending the reach of its game universes even further, Blizzard Entertainment is currently at wor! with 2egendary 3ictures, the studio behind the feature films 'atchmen , 1he -ar! 4night , Batman Begins , .uperman +eturns , and 566 , on a live"action 'arcraft movie. #. T$% &a ' a(t) U*i+% ,% Blizzard Entertainment%s most recent game release was 'orld of 'arcraft* 'rath of the 2ich 4ing7, the second e$pansion set to the company%s bestselling and award"winning subscription"based massively multiplayer online role"playing game, 'orld of 'arcraft. 'rath of the 2ich 4ing launched in 8ovember 966: in 8orth America, 2atin America, Europe, 4orea, Australia, 8ew ;ealand, .ingapore, <alaysia, and 1hailand, and the regions of 1aiwan, =ong 4ong, and <acau. )t sold a record"setting 9.: million copies in its first 94 hours of availability, and over 4 million in its first month, ma!ing it the fastest"selling 3, game of all time. 1his record was previously held by 'orld of 'arcraft>s first e$pansion, 'orld of 'arcraft* 1he Burning ,rusade(, which sold appro$imately 9.4 million copies in its first 94 hours, and went on to sell a record 5.? million copies within its first month. 1he e$pansion was launched in .outh 4orea in @ebruary 966A, the regions of 1aiwan, =ong 4ong, and <acau in April 966A, and mainland ,hina in .eptember 966A.

'orld of 'arcraft initially launched on 8ovember 95, 9664 in 8orth America, Australia, and 8ew ;ealand, with subse uent launches in .outh 4orea, Europe, mainland ,hina, .ingapore, and the regions of 1aiwan, =ong 4ong, and <acau in 966?, <alaysia in 966B, 1hailand in 966A, and 2atin America and +ussia in 966:. 1he game has achieved unprecedented popularity on a global scale, with millions of subscribers worldwide. Blizzard%s original 'arcraft game, 'arcraft* Crcs D =umans7 was touted as one of the best strategy games of 1994, and the game>s epic se uel, 199?>s 'arcraft ))* 1ides of -ar!ness7, won numerous awards, including the company>s first /ame of the 0ear award. 'arcraft )))* +eign of ,haos, released in Euly 9669, has li!ewise won several accolades and, li!e .tar,raft, has become a staple of professional tournament gaming, along with its e$pansion, the award" winning 'arcraft )))* 1he @rozen 1hrone(, which was released in Euly 9665. -. T$% Diablo) U*i+% ,% Cn Eune 9:, 966:, Blizzard Entertainment unveiled -iablo ))) , the latest entry in its landmar! action"role"playing game F+3/G franchise, at the Blizzard 'orldwide )nvitational event in 3aris, @rance. 1he original -iablo, which shipped to stores in the last wee! of -ecember 199B, debuted at &1 in the Hnited .tates and was widely credited as having helped to revitalize the +3/ genre. )n 9666, Blizzard Entertainment launched the game%s se uel, -iablo )) , which set the record for fastest"selling 3, game ever at the time of its release. 1he company followed up in 9661 with the e$pansion, -iablo ))* 2ord of -estruction7, which sold more than a million copies in its first month and was one of the biggest sellers of 9661, in addition to receiving widespread critical acclaim. .. T$% Sta C a(t) U*i+% ,% Cn <ay 19, 966A, at the Blizzard 'orldwide )nvitational event in .eoul, .outh 4orea, the company announced that .tar,raft )), the hotly anticipated se uel to one of the highest rated real"time strategy games of all time, was in development. 1he original .tar,raft, which Blizzard Entertainment released in <arch 199:, was the company%s third &1 seller and was listed as the bestselling game of 199: by 3, -ata. 1he game%s e$pansion set, .tar,raft* Brood 'ar7 was named best e$pansion of 199: and is still considered by many critics to be one of the best add"on products to date. 1his is especially the case in .outh 4orea, where the game%s mass popularity played a ma#or role in the birth of the professional"gaming and game" broadcasting phenomena, as well as serving as one of the !ey drivers behind the growth of the 3,"game"room business. /. Co01a*2 Ba'34 ou*! 3rior to the release of 'arcraft* Crcs D =umans, Blizzard Entertainment served as a third"party developer, creating entertainment software for various platforms, including <." -C., <acintosh, .ega /enesis, and .uper 8E.. 1he company%s best"!nown titles from this era include +oc! %n +oll +acing(, 1he 2ost Ii!ings(, and Blac!thorne7. 1he Blizzard Entertainment research and development group comprises more than 9?6 designers, producers, programmers, artists, and sound engineers. Each member of the Blizzard Entertainment staff is a true game enthusiast, giving the company invaluable insight into creating products for gamers. =ead uartered in )rvine, ,alif., Blizzard Entertainment, a division of Activision Blizzard, was founded in 1991 under the name .ilicon D .ynapse by

Allen Adham, 3resident D ,EC <ichael <orhaime, and E$ecutive Iice 3resident @ran! 3earce. )). ,ase .tudy* Crganization and Business Activities F,I3G 1. Crganization 'e have Crganizational ,hart as follow* CEO" Rob% t 5oti'3 C$ai 0a* o( t$% Boa !" 7%a*-B% *a ! L%+2 Vi'% C$ai 0a* o( t$% Boa !" Mi'$a%l 8 i((it$ Di %'to " Rob% t Mo 4a!o Di %'to " P$illi11% Ca1 o* Di %'to " Rob% t Co ti Di %'to " Lu'ia* 8 ai*4% Di %'to " St%1$a*% Rou,,%l Di %'to " R%4i, Tu i*i Di %'to " F %!% i' C %1i* Di %'to " Ri'$a ! Sa *o(( Cu,to0% " B6 Activison 3ublishing* E= ,@C* -ennis -ur!in =uman resources* A' 2egal* ,' ,CC* 1homas 1ippl 3ublic 3olicy* /+ .trategy and 1alent* =. Blizzard Entertainment* <<

9. )ndustry ATVI S%'to 9 I*!u,t 2 M%0b% ,$i1 S%'to " I*!u,t 2" I*t a!a2 P% (o 0a*'% Su00a 2 A'ti+i,io* Blizza !: I*'. Multi0%!ia ; 8 a1$i', So(<a % 1ic!er A1I) K0=Ch::4 1echnology <ultimedia D /raphics .ofware ,hange 9.A?J 6.16J

5. .ales .tatistic for each area Best selling Blizzard games and franchises* a. /ames* .ales data weight loss pills from 2ist of best"selling video games " 'orld of 'arcraft L 16.A million subscribers " .tar,raft including Brood 'ar e$pansion F9.? millionG " -iablo )) F4 millionG " -iablo ))* 2ord of -estruction Me$pansion pac!N F1 millionO 9 million shippedG " 'arcraft )))* +eign of ,haos F5 millionG " 'arcraft )))* 1he @rozen 1hrone Me$pansion pac!N F? millionG " -iablo F9.? millionG " 'arcraft ))* 1ides of -ar!ness F1 millionG b. @ranchises* " 'racraft* 19 million " .tar,raft* 9.? million " -iablo* 1:.? million

1able 1.61* 1otal Blizzard /ame +evenue F <archP9P9619G

BlizzardGame World of Warcraft World of Warcraft Expansions World of Warcraft Subscription Revenue StarCraft (including Brood War expansion) Diablo II Diablo II : Lord of Destruction expansion Warcraft III : Reign of Chaos Warcraft III : The Frozen Throne expansion Diablo Warcraft II : Tides of Darkness Starcraft II : Wings of Liberty Warcraft : Orcs & Humans Total BlizzardGameRevenue 9.5 Million 4 Million 1.2 Million 3 Million 5 Million 2.5 Million 1 Million 4.5 Million 1.1 Million 66 Million UnitsSold 12 Million 21 Million Revenue $228 Million $399 Million $1.3 Billion $437 Million $192 Million $33.6 Million $135 Million $95 Million $112.5 Million $50 Million $202.5 Million $45 Million $3.271Billion

4. +elevant data a. )ncome statement Fhttp*PPfinance.yahoo.comP PisQsLA1I)DannualG FAll numbers in thousands G

Period Ending

Dec 30, 2011

Dec 30, 2010

Dec 30, 2009

Total Revenue

4,755,000

4,447,000

4,279,000

Cost of Revenue

1,755,000

2,126,000

2,307,000

Gross Profit

3,000,000

2,321,000

1,972,000

Operating Expenses

Research Develop ent

6!6,000

635,000

627,000

"elling #eneral an$ %$ inistrative

1,001,000

&'1,000

'3',000

(on Recurring

25,000

326,000

!32,000

Others

*otal Operating Expenses

!erating "nco#e or $oss

1,32%,000

4&9,000

'2&,000(

+nco e fro

Continuing Operations 3,000 1,331,000 ) 1,331,000 2!6,000 ) 23,000 !'2,000 ) !'2,000 7!,000 ) 1&,000 .&,000/ ) .&,000/ .121,000/ )

*otal Other +nco e,Expenses (et Earnings -efore +nterest %n$ *axes +nterest Expense +nco e -efore *ax +nco e *ax Expense 0inorit1 +nterest

(et +nco e 2ro

Continuing Ops

1,0&5,000

!1&,000

113,000

(on)recurring Events Discontinue$ Operations Extraor$inar1 +te s Effect Of %ccounting Changes Other +te s ) ) ) ) ) ) ) ) ) ) ) )

)et "nco#e 3referre$ "toc4 %n$ Other %$5ust ents

1,0%5,000 )

41%,000 )

113,000 )

)et "nco#e *!!lica+le To ,o##on -.ares

1,0%5,000

41%,000

113,000

Currenc1 in 6"D7

b. =igh"2ow sale prices 1he following table sets forth, for the periods indicated, the high and low reported sale prices for our common stoc!. At @ebruary 99, 9616, there were 1,:?5 holders of record of our common stoc!. @or periods prior to Euly 9, 966:, the reported prices are for shares of Activision, )nc. before completion of the Business ,ombination. )n addition, in Euly 966:, the Board of -irectors approved a two"for"one split of our outstanding common stoc! and the prices set forth below have been restated as if the split had occurred as of the earliest period presented. #==> Fi ,t ?ua t% %*!%! Ma '$ -1: #==> S%'o*! ?ua t% %*!%! 7u*% -=: #==> T$i ! ?ua t% %*!%! S%1t%0b% -=: #==> Fou t$ ?ua t% %*!%! D%'%0b% -1: #==> #==B Fi ,t ?ua t% %*!%! Ma '$ -1: #==B S%'o*! ?ua t% %*!%! 7u*% -=: #==B T$i ! ?ua t% %*!%! S%1t%0b% -=: #==B Fou t$ ?ua t% %*!%! D%'%0b% -1: #==B c. ,onsolidated .tatement F-ec,51 9669G #==B N%t %+%*u% P o!u't ,al%, Sub,' i1tio*: li'%*,i*4 a*! ot$% Total *%t %+%*u%, Co,t, a*! ED1%*,%, Co,t o( ,al%,-1 o!u't 'o,t, Co,t o( ,al%,-,o(<a % o2alti%, a*! a0o tizatio* 1,459 54: %+%*u%, Fmillion dollarG 5,6:6 1,199 4,9A9 @ 1=.BB 1-.1. 1-.== 1#.BA @ >.1. B.>/ 1=.CB 1=.#/ 6i4$ @ 1..>> 1>.A/ 1B.#> 1/.-B Lo< @ 1#./A 1-..A 1..=. >.#>

Co,t o( ,al%,-i*t%ll%'tual 1 o1% t2 li'%*,%, Co,t o( ,al%,-0a,,i+%l2 0ulti-1la2% o*li*% ol%1la2i*4 4a0% P o!u't !%+%lo10%*t Sal%, a*! Ma 3%ti*4 8%*% al a*! a!0i*i,t ati+% I01ai 0%*t o( i*ta*4ibl% a,,%t, R%,t u'tu i*4 Total 'o,t, a*! %D1%*,%, O1% ati*4 i*'o0% Elo,,F I*+%,t0%*t a*! ot$% i*'o0% Elo,,F: *%t I*'o0% Elo,,F b%(o % i*'o0% taD b%*%(it I*'o0% taD b%*%(it N%t i*'o0% Elo,,F Ea *i*4 Elo,,F 1% 'o00o* ,$a % Ba,i' Dilut%! &%i4$t%!-a+% a4% *u0b% o( ,$a %, out,ta*!i*4 Ba,i' Dilut%!

51? 919 B9A ?44 59? 469 95 4,56? F9BG 1: : F191G 115

6.69 6.69

1,9:5 1,511

?. ,ase .tudy* ,ost"Iolume"3rofit Analysis FAdditional )ssuesG P obl%0 1* Ba,i' 'o*'%1t. A,,u0% t$at Blizza ! Co01a*2 $a, 'oll%'t%! t$% (ollo<i*4 !ata 'o*'% *i*4 it, 0ai*t%*a*'% 'o,t, (o t$% 1a,t A 0o*t$,. Units Produced July August September October November 4 million F-I-G 1 million ?66 thousand 9.96 million 5 million Total Cost RAmillion R9.?million R 1.B? million R 5 million R 4.? million

ecember

1.5 million

R 9.9? million

,ompute the variable and fi$ed cost elements using the high"low method. 'e have* ,hange in total cost * =igh"2ow activity level L Iariable ,ost per unit F9.?m S AmG F1.B?m S 9.?mG F5m S 1.B?mG F4.?m S 5mG F9.9?m S 4.?mG * * * * * F1m S 4mG F6.?m S 1mG F9.9m S 6.?mG F5m S 9.9mG F1.5m S 5mG L L L L L R1.? R1.A R6.A9 R1.:A? R6.91

ACTIVITY LEVEL =igh R9,?66,666 Total 'o,t L%,," Iariable costs 1 million $ R1.? 4 million $ R1.? Total (iD%! 'o,t, R1,666,666 R1,?66,666 RB,666,666 R1,666,666 2ow RA,666,666

P obl%0 #" ED%t% 0i*% (iD%!: +a iabl%: a*! 0iD%! 'o,tF" Mo*t$l2 1 o!u'tio* 'o,t, i*'u %! i* t$% 0a*u(a'tu i*4 1 o'%,, a % ,$o< b%lo< (o t$% 1 o!u'tio* o( 1# 0illio* u*it,. T$% utiliti%, a*! 0ai*t%*a*'% 'o,t, a % 0iD%! 'o,t,. P o!u'tio* i* U*it, P o!u'tio* Co,t, -irect materials AA:===:=== 1:.-#:=== 56,666

-irect labor Htilities 3roperty ta$es )ndirect labor .upervisory salaries <aintenance -epreciation COST SCH! U"! Iariable ,osts -irect labor -irect materials )ndirect labor 1otal variable cost @i$ed cost 3roperty ta$es .upervisor salaries -epreciation 1otal fi$ed cost <i$ed cost Htilities <aintenance 1otal mi$ed cost 11,666 966,666 911,666 191,666 519,666 ?1,666 491,666 916,666 56,666 496,666 A56,666

916,666 11,666 191,666 496,666 519,666 966,666 ?1,666

P obl%0 -" Co01ut% +a iou, 'o01o*%*t, to !% i+% ta 4%t *%t i*'o0% u*!% !i((% %*t a,,u01tio*,. .ales FBB,666,666 -I-G Iariable ,osts ,ontribution margin @i$ed ,osts N%t i*'o0% R5,9A1,666,666 A56,666,666 9,991,666,666 491,666,666 #:/==:===:===

1. )ncreasing selling price by 16J with no change in total variable costs )nitial .elling price L 5,9A1,666,666 * BB,666,666 L R49.?B 16J increasing in selling price LT .elling price L R49.?B U FR49.?B $ 16JG L R?4.?9 Iariable cost per unit L A56,666,666 * BB,666,666 L R11.6B 'e have* ?4.?9 $ BB,666,666 L 11.6B $ BB,666,666 U 491,666,666 U 1arget net income 8et income L R9,5AA,5B6,666 F1G ,ontribution margin per unit L R?4.?9 S R11.6B L R45.4B @i$ed costs * ,ontribution margin per unit L Brea!" even .ales R491,666,666 * R45.4B L 11,99A,A4?.6? FunitsG Actual .ales S Brea!"even .ales L <argin of .afety in -ollars F<uc bien an toanG R5,9A1,666,666 S R11,99A,A4?.6? L R5,9?9,A69,9??

9. +educe variable costs to ??J of sales ??J reduce in variable cost LT Iariable cost per unit L R11.6B S FR11.6B $ ??JG L R4.9: Iariable cost L A56,666,666 S FA56,666,666 $ ??JG L 59:,?66,666 'e have* 5,9A1,666,666 L 59:,?66,666 U 491,666,666 U 1arget net income 8et income L R9,4?1,?66,666 F9G ,ontribution margin per unit L R49.?B " R4.9: L R44.?: @i$ed costs * ,ontribution margin per unit L Brea!" even .ales 491,666,666 * R44.?: L R11,615,96A.?: FunitsG

Actual .ales S Brea!"even .ales L <argin of .afety in -ollars F<uc bien an toanG 5,9A1,666,666 " 11,615,96A.?: L R5,9?9,9:B,699

F1G U F9G LT Blizzard should be chosen reducing the variable cost instead of increasing selling price to get much profit.