In this paper, we consider a new lot-sizing and scheduling problem (LSSP) that minimizes the sum of production cost, setup cost and inventory cost. Setup carry-over, setup overlapping, state dependent setup time as well as demand splitting are considered. For this LSSP, we develop a mixed integer programming (MIP) model, of which the size does not increase even if we divide a time period into a number of micro time periods. Also, we develop an efficient heuristic algorithm by combining a decomposition scheme with a local search procedure. Test results show that the developed heuristic algorithm finds a good quality (in practice, even better) feasible solution using far less computation time compared with the CPLEX, a competitive MIP solver.