This statement is true. The quality loss function focuses on the economic and societal penalties incurred as a result of purchasing a nonconforming product.

A product may be nonconforming for a variety of reasons. The specific design and functionality of the product may be inherently flawed creating consumer dissatisfaction. Additionally, specific items may have defects causing immediate failure or failure shortly after purchase. An organization will suffer economic and social penalties if products fail to perform either through returns and rework, or through a drop in future sales due to declining reputation. The quality loss function will factor in both inherent flaws in a product and statistical defects into the product quality loss function.