378 ACCOUNTING FOR MANAGERS
Profit centre A division or unit of an organization that is
responsible for achieving profit targets.
Profitability index See cash value added.
Provision Estimates of possible future liabilities that may
arise.
Ratio analysis A method of analysing financial reports to
interpret trends and make comparisons by using
ratios – two numbers, with one generally
expressed as a percentage of the other.
Raw materials Unprocessed goods bought for manufacture,
part of inventory.
Relevant cost The cost that is relevant to a particular
decision – future, incremental cash flows.
Relevant range The upper and lower levels of activity within
which the business expects to be operating
within the short-term planning horizon (the
budget period).
Residual income (RI) The profit remaining after deducting from profit
a notional cost of capital on the investment in a
business or division of a business.
Responsibility centre A division or unit of an organization for which a
manager is held responsible – may be a cost
centre, profit centre or investment centre.
Retained profits The amount of profit after deducting interest,
taxation and dividends that is retained by the
business.
Return on capital
employed (ROCE)
The operating profit before interest and tax as a
percentage of the total shareholders’ funds plus
the long-term debt of the business.Return on investment
(ROI)
The net profit after tax as a percentage of the
shareholders’ investment in the business.Revenue Income earned from the sale of goods and
services.
Rolling budgets A method of budgeting in which as each month
passes, an additional budget month is added
such that there is always a 12-month budget.
Routing A list of all the labour or machining processes
and times required to convert raw materials into
finished goods or to deliver a service.
Sales mix The mix of product/services offered by the
business, each of which may be aimed at
different customers, with each product/service
having different prices and costs.