I always come across situations where people want specific elaborate deisgn but dont have budget for it and are ready to compromise of the size of the cake.
This particular cake in question had lot of fondant sculpting 3D work on top (palm tree with monkey hanging on it and offering banana to a hula girl sitting on rock next to a tiki house)
When asked to price for 14" and 12" cake, i proposed a price almost $20 $25 apart from each other e.g. 290 for 14" and 270 for 12".

Should there be a huge difference in price cause of the difference in size(e.g. lets say the potential client was expecting the price to go from 290 to 200)

the way i look at it the only difference was 2" of the cake but the fondant sculpting work which takes long time would have been the same....
I would like to know some thoughts from others for future reference.

Yeah it sounds like you're still going to do the same amount of work with all the figures so your time invested will still be the same. I can't see too much of a price difference there.

the sculpting is what takes the most time and your really only looking at 2 1/2 more cups of batter thus not increasing your cost of ingridients too much.

There is 22 servings different in a 12 in round and a 14 in round. Therefore in my opinion, there should have been a greater price difference, not including the additional stuff on top.

I would have priced that as an 12 in serves 56 people at $3 a serving (just throwing out a number) it would have been $168 for that cake, with out the stuff on top. A 14 in serves 78 people, at $3 a serving, it would have been $234. So for me the two cakes alone, using a $3 serving price, would have been a difference of $66.

Because the 'topper' is elaborate, I would have priced it separately and on top of the cake base prices. So that portion would remain the same price, unless it dropped significantly in size like from going on top of a 14in to going on top of an 8in, because you wouldn't have as much room for all of it, and would have to re-figure the topper.

I think you were on the right path that the topper is the same amount of work, I would just keep in mind the actual serving difference in the sizes, not just that the one cake is a little smaller.

http://cakecentral.com/cake-decorating-ftopict-694973-pricing.html

Ditto what Texas says...The price should drop on the serving amounts only...I would calculate the topper as a seperate cost.People think that because they drop the serving amounts the whole cake will drop drastically in price...Not really so...still the same amount of work to make a cake for 175 as opposed to 250.

I agree with TexasSugar! You should price by servings and additional fees for decorations and charge for your hourly fee as well, if you do that.

For me, cakes that have a design all over (like piped scrolls) have their whole price worked into a per serving price. The bigger the cake, the more surface area to pipe the design on, the more cost. Any sugar flowers, figures, etc... are an additional, separate, per piece price as those do not change as the cake size changes. Even if they get smaller or larger (within reason), it takes the same amount of time and work to make them.

For me, there would be a $20 difference between the two sizes (assuming round and 3" deep) in buttercream or $30 different in fondant.

Thank you so much everyone and thanks TexasSugar for the great advice.
I dont know why i never thought of separating the basic cake size and 3D work on top for pricing.
I'll defenitely keep that in mind next time.