What is interesting about this scene is the double use of dramatic irony. In most of the scene, both Kubelik and the audience know that Kubelik has had an affair with Sheldrake, and it allows Wilder to make the small talk pregnant with meaning. For example, when Baxter shows her Sheldrake's Christmas card, the audience cringes and she almost bursts into tears. Then, towards the end, when Baxter looks at her cracked mirror, the audience knows that Baxter suddenly knows about the affair. But neither Baxter nor Kubelik can admit it the other knows about it. The scene ends with the audience knowing that Baxter knows about the affair and having to wish Sheldrake a Merry Christmas. A lot happens in that scene.

Great analysis, dserg. There is a dual subtext at work, as you note: What we, the audience and Fran know, about her affair with Sheldrake. And the unknowing and unintentional meaning of what Baxter says. For example, "Do you know Mr. Sheldrake?" And showing her the Christmas card with a photo of Sheldrake with his family. In my view, it's one of the best scenes in the movie and demonstrates yet again why Wilder and Diamond were master storytellers. Thanks for your comments!