In a small saucepan, melt butter. Stir in the flour, salt and pepper until smooth. Gradually add milk. Bring to a boil; cook and stir for 2 minutes or until thickened and bubbly.

In a greased 2-1/2-qt. baking dish, layer with a third of the potatoes, half of the hot dogs and half of the onion. Repeat layers. Top with remaining potatoes. Pour white sauce over all.

Cover and bake at 350° for 1 hour. Uncover; sprinkle with cheese. Bake 10-15 minutes longer or until potatoes are tender.