One of the objectives of disaggregation in hierarchical production planning is to minimize the setup costs incurred when changing production from one family to another. In this research, the setup costs are reduced by determining a production schedule that minimizes the number of setups during the planning horizon. Previous solutions to the disaggregation problem have considered discrete-time, and more recently continuous-time formulations. This research extends the continuous time disaggregation approach by incorporating production schedules allowing backorder. A mathematical formulation and a solution algorithm are presented and the computational complexity and convergence properties of the algorithm are discussed. Experimental results, using both deterministic and stochastic demand patterns, which demonstrate the efficacies of the solution approach are provided.