Preheat the oven to 325F. Cream the butter and sugar together until light and fluffy. The mixture should be a pale yellow color.
Add the eggs, 1 at a time. Add the vanilla extract and mix. In a large bowl, sift the flour, baking powder, baking soda, and salt.
Add the flour mixture and the milk to the batter in 3 parts. Mix until just combined. Fold in 7 ounces of coconut.
Line a muffin tin. Fill each liner about half full with the batter. Bake for 25 to 35 minutes, until the tops are golden brown.
Cool in the pan for 10 minutes then pop them out onto a cooling rack. Cool completely before frosting.
Cream the cream cheese, butter, and vanilla until smooth. Add the powdered sugar and mix until smooth.
Frost the cupcakes and sprinkle with toasted coconut.
Changing up the flavor of the cupcake: If you like a more pronounced coconut flavor, using coconut extract in place of some of the vanilla is a good way to achieve that!
How to toast coconut in the oven: spread the coconut on a lined baking sheet. Bake at 325F until gold brown.