Heat oven to 350°F (325°F for dark or nonstick pan). Spray bottom only of 13x9-inch pan with baking spray with flour. Place paper baking cup in 1 regular-size muffin cup.
Make cake batter as directed on box. In small bowl, place 1/2 cup batter; stir in red food color. In another small bowl, place 1/2 cup batter; stir in blue food color.
Fill muffin cup 2/3 full with white batter; set aside. Pour remaining white batter into 13x9-inch pan. Randomly drop generous teaspoonfuls of red and blue batters over white batter in pan. For swirled design, cut through batters with knife in S-shaped curves in one continuous motion; turn pan one-fourth turn and repeat.
Place muffin pan and cake pan in oven. Bake muffin cup 12 to 13 minutes or until toothpick inserted in center comes out clean; place pan on cooling rack. Continue baking 13x9-inch cake 14 to 18 minutes longer or until toothpick inserted in center comes out clean. Cool cake in pan 10 minutes. Remove cake and cupcake from pans to cooling rack. Cool completely, about 1 hour.
Reserve 2 tablespoons frosting. Frost cake with remaining frosting. In upper left-hand corner of cake, lightly score 5x3 1/2-inch rectangle in frosting for blue area of flag; sprinkle with blue sugar. Cut 2 strips of clean white paper, 13 inches long and 1 1/2 inches wide. Cut a third strip, 8 inches long and 1 1/2 inches wide. Place strips lightly on cake to cover area for white stripes. Sprinkle red sugar on cake for red stripes. Remove paper strips. Top blue sugar with candy stars.
Frost cupcake with reserved frosting; place in center of cake. Arrange candles in and around cupcake. Store loosely covered.