Final answer:
The high-low method, which uses data from the highest and lowest activity levels to separate mixed costs into fixed and variable components, is indeed true. It provides a simple way to establish a cost formula for businesses to analyze their cost behavior.
Step-by-step explanation:
The high-low method is a technique used in cost accounting to determine the variable and fixed components of a company's mixed cost. It uses the highest and lowest activity levels and their associated costs to estimate the variable cost per unit and the total fixed cost. To clarify, the statement that the high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost is true.
Total costs consist of fixed costs and variable costs. In the context of a business like a barber shop, fixed costs, such as rental and equipment, remain constant irrespective of the output level, whereas variable costs depend on the production levels, for instance, the wages paid to the barbers based on the number of labor hours. By analyzing these costs, firms can gain valuable insights into the nature of their expenses and how they change with various levels of production.