I'm pretty proud of the beard and hair. Last year I made a beard out of felt for a different costume, but I wanted this one to be more flowey. I thought of batting, but it wasn't quite what I wanted. Instead, I used one of those fake spiderwebs they sell with the Halloween decorations! Rather than stretching it out into a spider web, as it's meant for, I cut it into lengths and stretched it just wide enough to be hair-like. I sewed the beard and mustache to a felt base, which ties around his head (and over his ears) with ribbon. The hair is sewn onto the hat.
For the hat, I just sewed a length of fabric to a circle roughly the size of the top of my son's head. I trimmed it, of course, and even made a little tassel for the top out of a few inches of fringe trim.
Total cost? About $10. Cuteness factor? Priceless.