I am a little confused. After entering Augustus DUNN, it sounds like you want him as child of John DUNN and Margaret DUDLEY. I don't know what you mean by "Father" dropdown and "Mother" dropdown - that is not how you link children to parents in existing families. The child linking options are:
1. Open the John DUNN/Margaret DUDLEY family record and attach a child - picking Augustus DUNN if he is created already or creating on the fly if you want.
2. Open the John DUNN/Margaret DUDLEY family record and drag Augustus DUNN from index window to the family window (he will be dropped as a child)
You would NOT want to open Augustus DUNN, choose menu command Tree->Attach->As Child in New Family... (or click button "Link as Child in New Family") and then attach John DUNN and Margaret DUDLEY to this family as parents, because the operative work here is "in New Family" - this action is creating a second family record for John DUNN and Margaret DUDLEY. You do not want that if you already created one when linking to Albert DUNN.
I recommend one of the following:
1. Create all children and parent individual records first
2. Create family record and link father and mother
3. Use attach child option to attach each child (or drag them from index window)
I usually do it on the fly:
1. Create family
2. Click "Attach Husband", use "New Male", open male and enter name and other details then go back to family
3. Repeat with "Attach Wife" for spouse (or menu command Tree->Attach->Male Partner... for same sex couple if needed)
4. For each child, click "+" icon in "Children" section and then click "Create Son" for son or hold down option key and click "Create Daughter" for daughter. After they are attached open their records with links in family records and enter name and details. After editing each one, go back to family and attach next child.
John