What I started with was the original 'Purple wristbands' stock item, and to enable it to become a stock item with variants, I edited the product:
I scrolled down to the 'Variants' sub-heading, checked the 'This product has variants' checkbox and choose the 'Colour' (not 'Color'!) attribute, and typed in 'Purple' as the default value for the base stock item.
To then add variants to the product: I checked and make a note of the inventory levels of the existing stock SKU for yellow wristbands. As you can see below, there is no stock on-hand at Legoland for the existing yellow wristband stock SKU.
Click on the newly-appeared 'Add Variant' button against the base stock item for wristbands
I typed in the Colour of the Yellow Wristband variant, updated the SKU name, and would adjust the stock levels of the SKU if need be. (In this case no adjustment is needed as stock on-hand was 0). After all this, click on 'Add Variant'.
Upon confirmation, you can see the new variant has been added and how it has been displayed.
Off the back of this. I then deactivated and untagged the existing Yellow Wristband SKU.
I have tested, a) How variants appear in inventory counts (if they are tagged properly, all variants appear individually as I would expect) and b) That you can add individual variants to product recipes.