I am going to throw my 2 cents in here. I would not fill those cakes - that is very time consuming and difficult (although it will be a bit easier since the size is so much bigger than a regular petit four) If she was paying for them, that would be different. Since she is just paying for the supplies - nope. I would just do the little cakes with the icing and the tiara's and not even mess with trying to torte them. I dread it when I get an order for the little buggars.....they are not easy to do. I am not even going there for the tiaras!! 
Can't wait to see the pics of them.....no doubt they will be adorable though!
I just feel bad telling her I'll do it for material cost and then go back on my word and ask her to pay for more.
Here's what I would do. I would politely explain to her that when you agreed to do the petit fours at cost you were not expecting such an intricate design, as this is not something that is normally on a petit four. These tiaras will take a LOT more time than say, piping a small drop flower on top of each one, which is what I usually see on them. Soooo, I would tell her that for the cakes and the frosting you will charge cost, but you're going to have to charge extra for the tiaras. Then she can decide whether she wants them or not.
If she decides to be even more petty and gets someone else to do the cake, since you were going to do it anyway, maybe make a cake for the mom-to-be as a gift to her, in the design/flavors that she wants and take it to the shower too. That might be hateful, but at least the guests would have a choice besides what the SIL likes. And I'm sure your friend would pass the work around if asked who made the beautiful cake.
yes, yes, yes! Do what hcromwell said, and if you're not brave enough atleast do what quadcrew said because that lady is totally taking advantage of you - since she didn't ask for them torted, don't offer it - I've never even tasted a torted petit four - they are delicious w/ just plain cake and the poured fondant IMO!
Have you seen those cakes where there is a smallish cake feature cake surrounded by little ones? Since you were going to make a small cake for your friend anyway why don't you make that the centrepiece topped with a tiara and then surround it with the (tiara-less) petit fours you could either have the small cake raised up on something or just use an ordinary cake board and just have a couple of rows of the petit fours surrounding the feature cake. I think that this would be a reasonable compromise and then you would only have to do one tiara.
I can't find anything saying how long it last but I am pretty sure that hardened royal icing decorations can be stored, room temperature, airtight container, pretty much indefinitely. As far as I know you should just not put them on your cake too far in advance because the grease in the buttercream may break down the royal icing and make it soft.
Misdawn:
You can keep them forever as long as they stay dry and clean.
Had an instructor who told me she had some that were 15 years old. Why in that time she had not used them I will never know but they were fine.
Now, about this chicky-do you are dealing with, unfortunately you've got a good friend caught in the middle of this hissy fit she is having.
And as much as it is going to cost you in time and maybe even a little money, you have to make it right for the friends sake, or else this chicky is going to be worse after the fact.
Take a deep breath and remember, it takes all kinds, and she is one of those kind.
Have fun, it's for a friend and you love her. Post pics and we've got your back.
Ladiva
OK here's my 2cents worth......for the flavor I would do lemon cake with raspberry BC filling....fondant flavored with raspberry......
As far as the design, I think the flower formers will work great- I would do a couple and see how they are going before I rock the boat with the SIL- maybe they won't be as bad as you think........plus, if you start now it wont seem like so many! LOL! Good Luck- and keep us posted!
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