This is the lunch bag I put together for my son...very quickly. See other bag post here.
I started out using a pattern but, I made several changes. I also decided to line the bag and add insulation. I appliqued the letters by tracing the letters in reverse on Steam-A-Seam 2. I then placed these traced letters on a piece of fabric and ironed it. Then I cut out the letters, peeled off the paper backing, and placed the letters where I wanted them on the bag. I ironed the letters again. Then I stitched the letters to the bag.
My son gave me the okay on this bag. :)