Melt chocolate in a saucepan over low heat, stirring until smooth. Stir in peanut butter and mix until smooth. You can also do this in the microwave like shown in video tutorial.
Remove from heat and add cereal to plastic zip bag and add chocolate mixture. Secure bag and shake until coated.
Pour powdered sugar into that large resealable plastic bag along with coated cereal and shake until well coated with the powdered sugar. Store in an airtight container.
Video
Notes
You can make this Patriotic Puppy Chow without the red, white, and blue M&M's and it will make a classic style puppy chow that is just as yummy.