Beat cream cheese, and butter at medium speed with a heavy-duty electric stand mixer until smooth. Add coconut extract, beating until blended. Gradually add powdered sugar, beating until smooth. Stir in coconut.
This frosting is much too sweet. The sweetness overpowers any cream cheese or coconut flavors. It might be better if unsweetened coconut is used. Since there are much better frosting recipes, I won't make it again.