Mix sugar, margarine, milk, vanilla, peppermint extract and egg, then stir in flour, baking powder and salt. Use 1/2 tsp of red food coloring to make 1/2 of the dough red. Cover and refrigerate both halves for at least 4 hours.
For each candy cane, shape 1 teaspoon dough from each half into a 4 inch rope by rolling back and forth on floured surface. Place 1 red and 1 white rope, side by side; press together lightly and twist. Place on ungreased cookie sheet; curve top of cookie down to shape like a candy cane. Bake at 375 for 9 to 12 minutes. Immediately sprinkle granulated sugar after removing from oven.