Unable to create Variants from Templates

Every time I create an item variant from its template using Create >> Multiple Variant option. Instead of creating a variant it marks it as a template, not sure what is going on. Can someone please assist.

This Item is a Template and cannot be used in transactions. Item attributes will be copied over into the variants unless ‘No Copy’ is set. This Item is This Item is a Variant of [XXXXXXX] (Template). In addition not able to find this setting. If this is what needs to be changed.