Fit a piping bag with a #4 plain tip and fill with 1/4 cup frosting; set aside. To make eyes, cut an 1/8-inch thick slice off the larger end of each gumdrop; add a small piece of licorice lace to the cut side of each slice. For ears, cut chocolate coating dots into triangle shapes with a paring knife. Cut licorice laces into 1 1/2- to 2-inch lengths for whiskers.
Frost cupcakes; coat generously with chocolate sprinkles. Insert ears into the icing of each cupcake, add whiskers and eyes and pipe a frosting nose.
In a mixing bowl, beat butter and cream cheese together until creamy, about 2 min. Stir in cocoa. Add confectioners' sugar, 1 cup at a time, mixing well. Beat in vanilla extract and milk and stir until smooth. Can be refrigerated up to one week; bring to room temperature and stir before using. Makes 3 cups.