My favorite yarn to use for my caps is Bernat Softee Baby. You can find it at Walmart and craft stores. Mary Maxim also supplies colors you won’t find everywhere:

I buy my buttons and embellishments at Walmart, craft stores and online. My favorite in-store location for buttons is JoAnn: http://www.joann.com/joann/catalog.jsp?CATID=stores

My favorite online source is More Than Just Buttons, an eBay store: http://stores.ebay.com/More-Than-Just-Buttons