Place cereal in a large bowl and set aside.
Melt the peanut butter, butter, and chocolate chips in a microwave-safe bowl 30 seconds at a time until melted. Add vanilla and mix well.
Pour mixture over cereal and mix until all cereal is coated.
Place cereal into a gallon-sized zip-lock bag. Sprinkle with the powdered sugar. Close bag and gently shake to mix.
Before you serve the Puppy Chow, add the royal icing transfers and the snowflakes. If you do it before you serve, the powdered sugar will coat the transfers.