The purpose of this study is to critically analyze the theory of hierarchical production planning that has been developed primarily at M.I.T., to present an extended model and algorithm that can more rationally formulate production plans at each hierarchical level—classified into product types, product families, and individual products—and to verify their validity. The main differences between the existing hierarchical production planning model and the model proposed in this study are as follows. First, in the case of the product family disaggregation model, the existing model seeks to minimize only total setup costs, whereas the proposed model minimizes the sum of inventory holding costs and setup costs. Second, in the case of the product disaggregation model, the existing model is a time-based model that aims to equalize inventory depletion periods, whereas the proposed model is a quantity-based model that seeks to minimize residual inventory. Furthermore, while the existing model selects the entire set of products belonging to a product family as planning targets, the proposed model designates only a subset of them as planning targets according to product selection rules. Third, while the existing model sets the planning horizons for the upper level (product type production plan), middle level (product family production plan), and lower level (product production plan) of the production planning system at one year, one month, and one month, respectively, the extended model readjusts these to one year, three to six months, and one month, respectively.