Preheat your oven to 350°F (175°C) and lightly grease a donut pan.
In a large mixing bowl, crush the apple cinnamon cereal into smaller pieces. You can use a rolling pin or your hands for this.
Add the flour, baking powder, baking soda, salt, and ground cinnamon to the bowl with the crushed cereal. Mix until well combined.
In another bowl, whisk together the granulated sugar, applesauce, milk, vegetable oil, egg, and vanilla extract until smooth.
Pour the wet ingredients into the dry ingredients and stir until just combined. Be careful not to overmix.
Spoon the batter into the prepared donut pan, filling each cavity about 2/3 full.
Bake in the preheated oven for 10-12 minutes, or until a toothpick inserted into the center comes out clean.
Allow the donuts to cool in the pan for 5 minutes before transferring them to a wire rack to cool completely.