The basic idea - put two long pieces of fabric together with some stabilizer inbetween - serge or sew around the edges - then, drop the feed dogs on your sewing machine and go crazy with some free-motion embroidery.
If you already own a sewing machine and/or serger, this project can be completed for under $10 (the cost of the thread and stabilizer).
Step 1: Cut fabric into strips
I use a mat with a rolling cutter and a ruler but you don't have to -- just cut two strips that are the same length. If you would like a multi-colored Franken-scarf, you can sew smaller strips of different colored t-shirts together to make two long strips that are approximately the same length.