1. Stir together 1 cup sugar, the butter, milk, vanilla, peppermint extract and egg in large bowl. Stir in flour, baking powder and salt. Divide dough in half. Stir food color into 1 half. Cover and refrigerate at least 4 hours.
2. Heat oven to 375ºF.
3. Stir together peppermint candy and 2 tablespoon sugar; set aside.
4. For each candy cane, shape 1 rounded teaspoon dough from each half into 4-inch rope by rolling back and forth on floured surface. Place 1 red and white rope side by side; press together lightly and twist. Place on ungreased cookie sheet; curve top of cookie down to form handle of cane.
5. Bake 9 to 12 minutes or until set and very light brown. Immediately sprinkle candy mixture over cookies. Remove from cookie sheet to wire rack. Cool completely, about 30 minutes.
To make cookies about the same size, measure dough for one cookie with a ruler, then use that dough to measure all the rest.