Thank you everyone for your helpful replies. Although I own a retail store myself (albeit online only), I can't believe I never considered this issue before buying the kp yarn. I was just thinking that the class is completely separate from the retail part of the store. I was just looking for instruction. I am paying $95 for 4 classes, each one 2hrs long.
I am currently taking another class at the same LYS and that one was $45 for 2 classes (each 2hrs) and when I got there for the first class I ended up spending $65 on a pair of Addis, a set of dpns, and 3 skeins of yarn - all for a baby hat. I know that the needles are an investment and will be used again, but I was floored at having to spend $28 on yarn, especially when it's a little baby hat and each color wasn't used that much. I guess I will just have to make a few more hats in the same color scheme to use it all up!
I will ask about their policy when I go for part II of the hat class this weekend. I guess I could always return the kp yarn..