PLACE 1/2 cup of the coconut in each of two separate resealable plastic bags; set remaining 1/2 cup coconut aside. Add blue food coloring to coconut in one bag and red food coloring to coconut in second bag. Seal bags; shake until coconut is evenly tinted.
SPREAD tops of cupcakes with whipped topping. Sprinkle with red, white (uncolored) and blue coconut as desired; press coconut gently into whipped topping to secure.
INSERT licorice piece into top of each cupcake for the firecracker's fuse. Store in refrigerator.