Preheat the oven to 350°F (180°C). Line a baking sheet with parchment paper.
In a large bowl, combine the butter and sugar. Cream together with an electric hand mixer until the butter is light and fluffy,
Add the egg and milk, and continue beating until smooth. Set aside.
In medium bowl, stir together the flour, baking soda, and salt.
Gradually add the dry ingredients to the wet ingredients and beat to combine until the dough comes together.
Turn the dough out onto a lightly floured surface and roll out to ¼-inch (¾ cm) thick. Cut out shapes with cookie cutters of your choice. Re-roll the excess dough and cut out more shapes until all of the dough is used. Transfer the cookies to the prepared baking sheet, spacing about 1 inch (2.5 cm) apart.
Bake for 6-8 minutes, or until the cookies are firm around the edges but still soft at the centers. Transfer to a wire rack to cool completely.
Make the frosting: In a large bowl, combine the powdered sugar, butter, vanilla, and condensed milk. Beat with an electric hand mixer until creamy and smooth. Divide the frosting between smaller bowls and add food coloring, if desired.
Decorate the cookies with the frosting, sprinkles, and candies.