MCA Industries Ltd. is a regional auto door handle distributor. It currently manages one distribution center (DC 1), which ships the products to four retail stores (A, B, C, and D). Due to the growing demands, the capacity of the current DC is not sufficient. The company is exploring two alternative options: 

a) expanding the current DC so that the capacity of DC 1 will be increased from 1000 (current) to 1500, with an annual fixed cost of $5,000; 

b) adding another DC (DC 2) along with the existing one (without expansion). 

It is estimated that the capacity of DC 2 will be 500, and the annual fixed cost associated with DC 2 will be $25,000. The cost in dollars to ship a truckload from the DCs to the retail stores and the total annual demand from each retail store are shown in the table below. Note that the capacity of the DCs and the total annual demand from each retail store are both measured in truckloads.

A	B	C	D
DC 1	104	94	75	78
DC 2	89	75	93	115
Annual Demand	300	400	450	250

 

Should the company expand DC 1 or add DC 2 based on the total annual cost (fixed cost and shipping cost) and why?