Preheat oven to 325° F. Line two (maybe even more!) baking sheets with parchment paper or non-stick silicone baking mats and set them aside.
In a large bowl, mix peanut butter, milk, and applesauce. You want the mixture to be smooth at this point, so make sure to break up any lumps.
1 cup peanut butter, 3/4 cup skim or nonfat milk, 1/3 cup unsweetened applesauce
Slowly add flour and baking powder, mixing as you go since the mixture is going to get very thick. If needed, place dough on a prepared surface to full incorporate the flour and baking powder with your hands. Add in the oats and bacon (again, using your hands as needed).
Place dough between two pieces of parchment paper and use a rolling pin to roll the dough out to be 1/4"-/1/8" thick. Using cookie cutter(s), cut out dough and place on prepared baking sheets. They really won't spread, but they will puff up. Just keep in mind - the thicker the cutouts are, the "puffier" the treats will end up being in the end.
Bake for 16 minutes and then flip and bake for another 12-15 minutes. Allow to cool completely and let your pup enjoy!
Notes
I recommend storing these at room temperature for up to a couple weeks. You can also throw them in the freezer for longer!