what is the best way to make a graduation cap? I am probably going to end up making small ones to place on cupcakes but would also like to know if there are any tips on larger ones as well.

I was imagining taking fondant/gumpaste and molding it around something small and round to keep the round shape. making a separate square shape for the mortar board letting it dry and attaching. what should i use to attach it- gumpaste glue? how about making the tassle? Any tips? Any suggestions on a small round item to dry the caps on i am coming up blank?

Try the minicupcake pans. They should be exactly what you are looking for

Use a ball pan for the round shape. Do the square just like you said.

Use candy melts to glue them together.

Here's one tutorial on tassels:

http://www.wilton.com/idea/Honor-Roll-Scroll

Lots of them come up when you google.

If you want small ones to place on cup cakes, here is how i would do them.

Freeze a bag of mini peanut butter cups, then dip the unwrapped candies in chocolate color of your choice. For the mortarboard dip a gram cracker square in the same color as the hat part and glue together. You can use a tip 233 to make your tassels or use fondant in the appropriate color.