In a large mixing bowl, beat together softened butter and cream cheese until creamy and fluffy for about 2-3 minutes. Add granulated sugar and vanilla extract; mix until incorporated. Add egg and blend until combined. Gradually mix in yellow cake mix until a thick, smooth dough forms. Cover the bowl and chill in the fridge for 30-60 minutes.

Preheat your oven to 350°F (175°C). Roll chilled dough into 1-inch balls. Roll the dough balls first in colorful sprinkles, then generously in powdered sugar for a crackled appearance.

Line a baking sheet with parchment paper. Place the coated dough balls 2 inches apart on the sheet. Bake for 10-12 minutes until edges are golden but centers remain soft and puffy. Monitor to avoid overbaking.

Allow cookies to cool on the baking sheet for about 5 minutes before transferring to a wire rack. Serve them warm or at room temperature.