What about a big flat cake covered in white fondant icing. You could get a few of them to do handprints in food colouring? Actually just thought about that - would it come off? Handprints cut out of coloured fondant?
Are you allowed to make cakes? Our nursery asks you to buy them so they can make sure they are nut-free etc. I made a birthday cake for ds to take to nursery and the children weren't allowed to eat it at the nursery, they had to take it home with them. It is crazy as I could be absolutely certain that there were no nuts or anything else harmful in it.
Buy some moulding icing and roll it out. Cut out rectangles - long thin ones. (Use a pastry wheel if you've got one.) Leave on a flat surface - baking sheet or chopping board - overnight until they've set hard. Using different coloured icing pens, write the name of every child on a separate rectangle. Allow to dry for a bit. Stick them onto your large iced cake with royal icing if prepared in advance, butter icing on the day. Fill in any gaps with sweets.
The first thing I'd check is whether any of the kids have allergies which might limit types of cakes.
Things like fairy cakes are pretty plain or banana cake put into muffin containers go down well.
Decorations should probably have as little sugar as possible I'd have thought so not sure what would be the best solution there.
Yes we are allowed to make cakes - as long as they don't have any nuts in them. I like the dolly mixture fairy cakes idea. The idea of making a large cake was so that all the kids could blow out candles
Ooh could each child have a candle on their fairy cake and then blow their own one out at the same time - you know one two three blow?
Don't know how easy it would be but you could ice a letter on each one for somebodies name?