I agree with the others. Next time someone wants a quilt done, have them buy fabric for top, backing and batting and then quote a price for your labor.
Jeanne

I would refund the entire amount and I would include copies/breakdown of your costs and time to help explain why you cancelled the order. People don't fully understand the fixed costs much less the time involved -- which includes fabric preparation like washing, drying, ironing, cutting, etc. as well as piecing and quilting. But the fault does remain yours as you having quoted the price.

People often ask me why I don't sell my quilts, my usual reply is that I give freely but I don't work for nothing. Pretty much everyone who has ever asked me to make one for them freaks out when I estimate just the material costs, and then with minimum wage in Seattle being $15/hour and that I have 40 years of experience quilting, surely I would be worth that and I estimate that project to be roughly 100 hours start to finish, and no one has ever taken me up on it.

Being a quilter who does a lot of commission quilts I have to agree with many of these posts, you need to refund his deposit. And accept it was a lesson learned.
I have a couple times in the past 20 years taken a loss on a quilt. When you quote a price you need to honor that.
I have contracts and everything is discussed, put in writing and signed . 50% deposit is paid before I purchase a single thing or cut a single fabric. To start the conversation I Always quote fairly high ( someone asks- would you make me a queen size quilt?) I start my answer with Queen size quilts start at $500 and go from there, what did you have in mind? If they are still interested we then discuss theme, colors, pattern, details. If it’s different from anything I’ve already done I let them know I will check patterns, fabric requirements etc and get back to them, if it’s like one I’ve already done then I pretty much know the details.
i do whatever research is necessary ( I don’t order anything or purchase anything yet) and then write up the contract with expenses estimated time, quilting cost everything in writing and then sit down with the potential customer. If they agree we both sign the contract, they pay their deposit and I get busy. If something unexpected happens that costs me more, oh well- that’s on me. I always honor my quote. ( king size quilt prices range from $750-$1500! )
a couple years ago I made a special quilt for someone and a couple things happened that made it cost a little more than the quote just in materials and quilting- no labor time, when the quilt was finished I wrote up the invoice detailing all charges and time, then put ( price of quilt .... deposit received..... amount due.....
and delivered the quilt. The purchaser was so excited about the quilt Loved It. She paid what she still owed which was all I expected. About a week later I received a very nice card in the mail with a note and a check for $300 saying— you didn’t make any money on this quilt! I’m paying you more, we are thrilled with it and you deserve more.

its always best to estimate high, then they will be happy if it winds up less, and if they aren’t interested it’s their loss.

I would refund in full and chalk it up as a learning experience. Maybe you can resell the fabric on Etsy or Ebay. When I do quilts or hand quilting for others, if I come up short I never go back and say, Now you owe me more. It was my mistake estimating, it's on me to take the loss.

And don't undervalue your work in the future.$250 - $350 for a king quilt is very low.

I have been asked a few times if I would make a quilt for a person. Because the non-quilters out there have no idea the cost of just the materials needed, I just say I don't make quilts for others and leave it at that. I do give quilts to someone who has "moved" me in a certain way and expect nothing in return. Of course I make quilts for new babies and other such life events, specifically for relatives and close friends. You have do what feels right for you.

I certainly agree with Flyboy Jim that you just need to send his deposit back to him and cut your losses of buying the fabrics and hopefully the company will take the fabrics back. Your customer does not realize what costs go into making a large quilt. If he goes to any website such as some in Lancaster, Pa he can check out the cost of quilts. They usually run from $800.00 to over $1000.00. He was getting a deal for what you were charging.

I agree with so many that this one is on you. If the price was agreed upon and you found the cost would be much higher, a more equitable price should have been arranged before materials were ordered.

You are kind to factor in the sale price of fabric from your stash and so your client received a bargain on his first quilt. An explanation, an apology and his refund in a nice note card will save your credibility.

full refund, with a smile.

Yes, I'd also send back his $150, and then return the fabric at my own expense... if the company even takes back cut yardage. It's a lesson learned, to know your costs before you quote a price.
Since you won't be making the quilt for zero money for labor, I think you come out on top!

Send him back his money minus your cost for check and postage. Chalk it up to a learning experience. Be sure that all you cost are the first part of your equation next time around. And don't short change yourself on what you deserve for all your work. You are the most important part of the equation. Best of luck