In this paper, an integrated production inventory model is developed for two products on a single facility in which the raw materials are fed to the production system as required at the facility. The aim is to determine simultaneously the optimal production schedule for two products and the optimal procurement policies for the raw materials in a way that minimizes the total variable cost of the production system. The production schedule for the more frequently set-up product is formulated by the method of equal or unequal lot sizes. For the model developed, we present a computational scheme of finding the optimal policies and carry out sensitivity analysis through example problem.