Another simple and inexpensive costume.
Take a pillow case, cut up the center, which will be the front, and then along the top seam a few inches. For arm holes cut from the top corners down about 6"- 8" . You can use these to top a basic T tunic or layered with your poncho rectangle panel, or on their own. A piece of thick cotton cord or another strip of fabric works for a belt. We used King sized pillow cases for the taller kids.
We made a bunch of these when we studied Joseph (we found some bright stripes and patterns) and also have used them for Christmas and just this week as we started studying Holy Week, we used them in our Pathway Playhouse for our tableau.
YOU can find instructions for making basic T tunics by doing an online search.
I've cranked out large quantities of these for Christmas plays (hint for angels find white ruffled curtains and put the ruffles at the hem line).