More like aarons6 had a bunch of ninja hoods and 3000 extra cloth in the bag, and he got cloth back for the hoods, and all the unused cloth got turned into bandages, at the same time.
After my first mishap of that nature, I never put more cloth in the bag than I needed for the items I was making. For example, if the item takes 11 cloth, and you cna only make 100 of them before running into the item count barrier, never put more than 1100 cloth in the bag. On a lot of items, the items weigh more than the cloth to make them, and you can run into weight issues that way, so it's really inefficient in the long run to pile more than you need onto you when crafting cloth items.
It's not a bug with the bag, more along the lines of an undocumented feature (the bag also cuts bone piles into the crafting bones that way, and does it much more efficiently than scissors, as bones don't hit the ground if you use the bag on them to cut when overweight)