I got all of my supplies at a dollar store (where everything is $1.25 now): Carwash style sponges, J cloths and zip ties. You can use several other styles of sponges too and I did, but I liked these ones the best.
Snip the zip tie close to the center. Then flouf. Just move the pieces around to fill any gaps.
We bought a plastic tub with handles at Wal-Mart. Filled it with Sponge Bombs and then your tub can be filled with water for your water fight.
Total cost per bomb: 1.46
Zip Tie - .04
Sponges - 1.25
J Cloth (1 cloth will make at least 2 bombs) - .17
Tub $5 at Wal-Mart
They did not all survive the fight though. 7 year-old boys are not known for 'gently' water fighting and our Border Collie kept trying to 'fetch' them too. But there were still some intact at the end of the battle.
These would be great for any summer family gathering!