Spread 1 and 1/2 to 2 cups sweetened, shredded coconut onto a baking sheet. You want to end up with 1 cup of finely chopped (processed in the food processor) coconut, so you need to start with more than that.
Bake coconut in a pre-heated 350*F oven for 3-7 minutes. Check after 2 minutes, then check and stir around every minute or so after. The coconut can burn VERY quickly, so watch it closely. The coconut is done when it is golden brown and fragrant. Set aside to cool.
In a large bowl, add flour and baking powder. Whisk gently, then set aside.
In the bowl of an electric mixer, beat butter until smooth. Add sugar and blend until well combined.
While slowly blending, add egg and both extracts. Blend until combined and then stop mixer and scrape down the side of the bowl.
Place cooled coconut into a food processor and process until the coconut is no larger than 1/4" in length. The smaller the coconut pieces, the easier it will be to cut more intricate shapes, but also you'll loose some of the nice chewy texture that the coconut adds, so process as much or as little as you like. Add processed coconut to the bowl of flour, and stir together.
Start the electric mixer back on low, and slowly pour the flour/coconut mixture into the bowl. Blend until fully combined and the dough starts pulling away from the sides of the bowl.
Dump the dough into the bowl the flour was in, and scrape out any little bits of dough (into the flour bowl). Grab about half of the dough and form into a large ball (kneed by hand just a bit if needed) and put dough into a large ziplock bag (or wrap in plastic wrap). Repeat with the other half of the dough. Flatted the (wrapped) balls of dough just a bit, and put the two flatted disks of dough in the fridge for 15-30 minutes until firm.
Roll out the chilled dough on a lightly floured work surface, or between two sheets of parchment paper or plastic wrap. Roll to about 1/4"-1/3" thick and cut into desired shapes. Add cookie shapes to a baking sheet lined with parchment paper or a Silpat liner and once you've filled the baking sheet (leaving about 1" spacing between shapes), place the entire baking sheet in the fridge or freezer for 10-15 minutes.
Bake (well chilled cookies) in a pre-heated 350*F oven for 9-11 minutes. The cookies should be just beginning to have a bit of golden brown on the edges and not appear moist in the center, but still be mostly quite light in color. Cool on baking sheet about 1 minute, then move to a wire cooling rack.
Enjoy cookies as is, or decorate as desired with royal icing, chocolate, etc.